Something I just saw in the charts made me bet against stocks: Trader

An unsettling trend has appeared in the charts, and that has one trader betting against the S&P 500.

According to Todd Gordon of, the divergence among major indexes is a warning sign that a pullback could be on the way.

Gordon starts with a chart of the Dow Jones transportation index to make his point, noting that the index is "not looking very healthy" as it has been "putting in a lower high" in the past few weeks. The chart has been making a "traditional head-and-shoulders pattern," and with the lower highs Gordon believes the index could fall below the neckline in that pattern.

"If you start getting a push through 13,700, that's not good," he said Thursday on CNBC's "Trading Nation." "That's not going to be a bullish sign at all."

And while the transports have been putting in lower highs, the S&P 500-tracking ETF (SPY) has put in what Gordon calls a "double top." Technicians believe that a double top usually precedes another drop in a stock price, meaning that Gordon believes the SPY is set to drop as well.

Adding to what could be bad news for stocks, Gordon points out how the ETF that tracks the Nasdaq 100, QQQ, is outperforming — a sign that tech stocks bear a great deal of responsibility for the S&P's rise to record highs.

"We're seeing pretty good underperformance in sectors such as energy and the financials, and a lot of this is the move up in Apple, Google, Amazon and Facebook," he explained. "So we need tech to continue, or we might see some continued downside."

As a result, Gordon is betting against stocks. He explained that he bought some June monthly SPY puts to hedge his equity portfolio in case of a drop in the market. These are options that will profit if the SPY slides.

"This is a short-term hedge just to look at about a 3 to 5 percent downside in the S&P," said Gordon. "If the market regains footing and goes higher, I'm happy to cut that hedge."

All three major indexes were down on Thursday, retreating after the S&P and the Nasdaq hit new all-time highs earlier in the week.


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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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