Why it might be time to bet on emerging markets

The emerging markets have been trading in a range for the past few months, but one trader sees signs of a breakout to the upside.

Todd Gordon of TradingAnalysis.com said a popular emerging markets ETF, the EEM, has being "pretty beaten down" this year but from a technical standpoint, it could be headed for a consistent rise.

On a chart of the EEM, Gordon gets specific and takes a look at the ETF's recent moves.

"We have a left shoulder, we have a head and we have a right shoulder right here. This is a technical pattern called an inverse head and shoulders," he said Monday on CNBC's "Trading Nation."

An inverse head and shoulders is a chart pattern that is thought to precede a trend reversal.

On Monday, the EEM rose to its highest level since April.

In addition, Gordon also believes that based on the EEM's more recent levels, $35 is the breakout level to watch.

"If we can break through $35, the pattern is complete and it looks like we'll get some help internationally for our domestic market rally," he said.

In fact, the EEM's premarket price was $35.18 on Tuesday morning.

Since options prices on the EEM have fallen, Gordon suggests simply buying a call option to bet on the ETF, rather than simultaneously buying a call and selling a higher strike call to make a call spread.


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.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more