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.