Trading Nation

Stocks are ‘teetering on a technical breakdown,’ trader warns

Here's why the market is breaking down
VIDEO2:2102:21
Here's why the market is breaking down
The ‘Northman trader’: Stocks could be in for a big drop
VIDEO4:4504:45
The ‘Northman trader’: Stocks could be in for a big drop
Are Treasury yields on their way higher for real?
VIDEO3:0603:06
Are Treasury yields on their way higher for real?

The market now finds itself on unstable footing, with two sectors in particular sending warning signs, according to Todd Gordon of TradingAnalysis.com.

"We have a market that is teetering on the brink of a significant technical breakdown," Gordon said Tuesday on CNBC's "Trading Nation."

Gordon views the consumer discretionary and health-care sectors as potential problem areas for the market.


Consumer discretionary is one of the few sectors that is down on the year. And recently, the ETF tracking the group (XLY) has fallen to a level of support, according to Gordon.

Within the sector, traditional retail stocks such as Kohl's and auto stocks such as Ford have been among the hardest hit in 2016.

Gordon views health care as another sector worth watching. This happens to be the worst-performing sector within the S&P year-to-date. And it now finds itself at a crucial level, according to the chart-minded trader.

"This one also, right down to the test of uptrend support and the decision level, is upon us," Gordon said. That support level would be $71, or just $0.60 below where the ETF closed on Tuesday.

Conversely, technology is showing strength. Looking at the chart of technology-tracking ETF XLK, Gordon notes that it has shown "pretty good relative strength," and unlike the other ETFs mentioned, it is trading a good deal above its relevant support level.

However, he doesn't think technology will be enough to keep the rally going.

"If XLY and XLV break, that's going to weigh on the broader markets — even the relative strength of technology might be pulled down, so that's where we're going to be watching," Gordon explained.


Berkshire Hathaway Live Event