Crude is crashing, and here's where I see it going next: Trader

  • Trader sees even more pain ahead for crude oil
  • Oil and gas service stocks are the group trader Todd Gordon believes will be hardest hit.

Crude just had its worst day in five months, and one technically minded trader who has had a hot hand calling crude's next move sees even more trouble.

With crude hitting below $46 on Thursday for the first time since Nov. 30, Todd Gordon of TradingAnalysis.com said the commodity may retest old lows from 2016. "That opens the door to not only lower $40s, but possibly into the $30s," he said Thursday on CNBC's "Trading Nation."

Indeed, West Texas Intermediate continued the slide Friday, slipping to $45.36.

Gordon sees crude possibly dropping back down to its summer 2016 low, which sat at around $39.30. But according to the trader, crude itself won't be the biggest victim of its plunge. Gordon has made bold and correct calls on oil in the past. In November 2015, Gordon correctly predicted that crude would touch $26 a barrel.

Now Gordon has his eye on a plunge for oil and gas exploration stocks. Overlaying a chart of XES, the ETF that tracks oil and gas service and equipment stocks, over a chart of crude, Gordon points out that XES has already fallen below its summer 2016 lows compared to crude, which is "still a good $5 to $6 away" from those summer lows. In other words, Gordon believes that oil service and exploration stocks are underperforming crude and therefore in a more precarious position should oil continue its fall.

And within XES, there are two stocks in particular whose charts Gordon describes as "terrible." The first is Halliburton, which Gordon says has broken below an "uptrend support" that had been in place since March 2016. Technicians often look at trend lines for direction on a stock's next move. Now that Halliburton is below that "support" line, Gordon believes it will serve as "resistance" at around the $49 to $50 region, implying that Halliburton has more room to drop.

The second stock that has Gordon worried is Diamond Offshore. Gordon points out that a "head and shoulders pattern" had formed in the past few months, but that the stock has fallen below the "neckline" of the pattern at around the $15 region. As a result, Gordon believes that $15 is no longer "support" and that "a downside is certainly in play" for Diamond Offshore.

"As long as that crude oil continues down into the $40s and $30s, these underlying stocks are going to have some problems," concluded Gordon.

XES has actually plunged more than 25 percent this year, while oil has only fallen 15 percent year to date by comparison, including Thursday's plunge.

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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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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