A brave trade: Why one technical analyst is betting on retail stocks

Why one trader sees a bounce for retail

Retail stocks have been badly punished this year, but Todd Gordon of TradingAnalysis.com sees opportunity in the hammered group.

Examining a chart of the SPDR S&P Retail ETF (XRT), Gordon spots "support" at around the $38.50 level, which is roughly where it closed on Thursday.

So long as the ETF manages to hold that level, "the XRT could actually bounce back and retest the $40 or $41 level that it last hit in early August," Gordon said Thursday on CNBC's "Trading Nation. "

To make his bullish play, the trader is turning to the options market. Specifically, Gordon is selling the September monthly 39-strike put and buying the September monthly 35-strike put for a net credit of 84 cents, or $84 per options spread.

If XRT closes above $39 on Sept. 15 expiration, then Gordon would make the $84 credit on the trade. But if XRT were to close below $35, 9 percent below Thursday's levels, then Gordon would lose $316.

Yet he plans to exit the trade early, instead of potentially taking such a large loss.

"This is a countertrend trade, so when you're going in so much against the trend, because retail has obviously been under a lot of pressure, you need to have a very contained stop loss," said the trader.

Specifically, Gordon plans to exit the trade if XRT falls below $38, just around the "support" line he established.

The XRT fell 1.6 percent on Thursday, and is now down 13 percent for the year.