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Why I’m worried about small caps: Trader

VIDEO2:0702:07
Why I’m worried about small caps: Trader

The Russell 2000's upward momentum is "waning," warns one trader who sees losses ahead for the small-cap index.

While the is up more than 2 percent over the past year, the Russell has dropped 3 percent.

"The divergence, or the momentum, has been lost," Todd Gordon, founder of TradingAnalysis.com, said Tuesday on "Trading Nation, " pointing to a chart of the relative strength indicator, which is making "lower highs" relative to the Russell 2000.

One reason for the index's weakness is the financials, which have lagged recently, and comprise about a quarter of the Russell, as compared to about 15 percent of the S&P.

Gordon points out that the Russell has not yet eclipsed its 2015 peaks, as opposed to the S&P 500, which has made a series of all-time highs.

"They say don't sell a quiet market, but I'm very much on guard for a reversal out of this uptrend channel in the Russell," Gordon said.

"And we will be looking for short opportunities in the relative underperformer that is the Russell 2000."