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The chart that has one technical analyst betting against stocks

Technical trader Todd Gordon is betting on even more downside for the market after two tough weeks for the S&P 500.

"With the recent volatility, we have in fact broken uptrend support," the founder of TradingAnalysis.com said Monday on CNBC's "Trading Nation." "That is not going to be a constructive thing for the bulls."

Gordon is referring to a chart that shows the S&P 500-tracking ETF SPY has broken below what he sees as "support" at $244.

On a chart of the SPY, Gordon points out that the ETF has been making a series of higher lows starting in April, and connecting those dots shows where the market's support lies. But with the SPY falling as low as $241.83 on Monday, the market has decisively broken below that trend line.

As a result, Gordon believes the SPY could fall back to its April lows of $232.51, which represents the first chronological point on that support line.

In order to cash in on such a move, Gordon is buying the September 241-strike put and selling the September monthly 236-strike put for a total credit of about $1.37, or $137 per options spread.

That $137 is the most he could lose on the trade, but if that SPY closes at or below $236, he will see a profit of $463.

There is one caveat, however. In order to mitigate losses, Gordon will sell out of the trade if the SPY breaks above $244, as that will indicate that his thesis is "invalid."

Since hitting a record high on Aug. 8, the S&P 500 has fallen as much as 3 percent through Monday's low.

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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.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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