A confluence of decreasing foot traffic at brick-and-mortar stores and the potential for a border adjustment tax has sent retail stocks sinking this year, and that has one trader ringing the alarm on the beaten space.
"Retail is a train wreck," Dan Nathan of RiskReversal.com told CNBC's "Fast Money" on Thursday. The XRT retail ETF is down 4 percent in 2017 and hit a year-to-date low this week. "The XRT might be the worst chart I have ever seen."
Looking at a long-term chart of the XRT, Nathan warned of what "looks like a classic head and shoulders top forming." Traders typically see this type of pattern as a possible indication of more trouble ahead for a stock.
Retail has been in a precipitous decline over the last two years, falling more than 17 percent from its March 2015 high.
According to Nathan, there's one name in the retail space that options traders are eyeing for even more pain: Target. The big-box retailer has gotten crushed after reporting weaker-than-expected earnings amid growing online competition. "All the gaps [in the chart] tell you something about the visibility and competition," he said.
Nathan noted that put volume was two times that of calls during Thursday's trading session. One trader bought 1,000 of the April 52.5-strike puts for 75 cents. This means that the trader is making a bet that Target shares will fall below $51.75 by April expiration.
"The stock has really gone down to a really important technical support level ... maybe [the trader is] continuing some protection as Target continues to go down."
The XRT got a boost on Friday, rising nearly 1 percent.
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