This chart signals trouble for big banks

It's been a turbulent year for the big banks, and one technician says things are about to get even tougher.

"Financials have been underperforming the broader market this year," Todd Gordon said Wednesday on CNBC's "Trading Nation." The financials are the worst performing sector in 2016, down 6 percent while the S&P 500 is up 1 percent. "While the S&P 500 has been making [year-to-date] highs, the financials have topped out," he added.

According to Gordon, the technicals are painting a grim picture for one the sector's most heavily weighted stocks. "I think Wells Fargo is ready for the next big leg down," said the founder of Wells Fargo is the second-largest stock in the financial sector after Berkshire Hathaway. Shares of Wells Fargo have fallen 12 percent since early January. "I like to short weak stocks within weaker sectors relative to the market," he said.

Looking at a chart of Wells Fargo, Gordon noted that the stock has been butting up against key resistance around the $50. "It looks like we could go down and test the February lows [of around $44] especially after earnings on April 14," said Gordon.

Read MoreTraders see 'extraordinarily low' chance of further gains

To make a bearish bet, Gordon purchased the April 47/46 put spread for 30 cents. This is a bet that Wells Fargo could fall as low as $46, more than 4 percent, in the next two weeks.

"If we are right in the direction, we make money. And if volatility increases like we believe it will — especially with an event like earnings — that will increase the value of our spread as well," Gordon said.

Wells Fargo is among the first of the big banks to kick off earnings season next week. The company is expected to report earnings of 98 cents per share on $21 billion in revenue, per data from FactSet.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more