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Trader makes a contrarian case for betting on the financials

The lagging financial sector could be set for a rebound as bonds slide, according to Todd Gordon of TradingAnalysis.com.

"If this stock market break is for real, we should be able to get down and test lower levels in the bond market," Gordon said Tuesday on CNBC's "Trading Nation."

"And as the bond market moves lower, the financials should benefit, and that's what we're seeing in today's session."

On a chart of the Financial Select Sector SPDR Fund (XLF), Gordon shows that $24 is the level to watch.


"XLF had a nice push up, and now we have begun to end the correction," he said.

Gordon says the $24 mark was the old resistance level on the XLF, which tracks names like like Berkshire Hathaway, JP Morgan Chase and Bank of America.

The ETF closed Tuesday at $23.34, or up 1.26 percent. Even as the S&P 500 has hit all-time highs, the financials have lagged — it's the only sector that remains negative on the year.

But Gordon is betting for his next trade on a continuation through the "resistance of $24," and is planning to use a call spread to speculate on a rise to $25.

Other traders predict that financials will continue to lag the market due to a lack of momentum and an unfavorable bond-yield environment.

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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.

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