There’s something in the charts that’s making me nervous about tech: Trader

Investors may be wise to pump the brakes on the Nasdaq as we head into big tech earnings, according to one technician.

The Nasdaq 100 ETF, QQQ, posted its worst session in nearly a month on Thursday, as its top components — Apple, Facebook, Amazon and Alphabet — all fell about 1 percent. This move has Todd Gordon of taking a second look at the charts.

"We're seeing a little bit of volatility in the market in a quite precarious position," said Gordon.

"If we take a look at the technical position of the Nasdaq [the QQQ] and connect the trend lines you're going to see that they are converging ... and that generally suggests a loss of upside momentum," Gordon said Thursday on CNBC's "Trading Nation."

Furthermore, despite the ETF hitting record highs this week, Gordon pointed out that the Relative Strength Index is showing that the QQQ is "tracing out a series of lower highs, which indicates that the loss of momentum in the underlying QQQ is occurring even though we are making new highs." The Relative Strength Index, or RSI, is a tool often used by technicians to detect a short-term trend of an asset.

He pointed to recent underperformance of Apple and Amazon as proof the rally is stalling. The two tech titans are down a respective 5 and 10 percent from their recent highs.

Gordon also noted that while Facebook and Alphabet both hit highs this week, their moves were not convincing enough to keep piling into the group.

"It's time to hedge our long portfolio with some downside put spreads," said Gordon.

Specifically, he bought the Nov. 3 weekly 145/143 put spread for 22 cents. That means Gordon would stand to profit if the QQQ closes below $144.78 by Nov. 3 expiration, which is more than 2 percent lower than current levels. If the QQQ closes above that level, he'll lose the amount he spent on the trade, but if it closes below it he could make $178.

"This is a really good reward-to-risk ratio. This is only going to kick into gear if the Nasdaq really starts to take a dive in the next two weeks," Gordon said.

The QQQ closed at $148.31 on Thursday.


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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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