Here’s why one trader is betting on Goldman Sachs for a breakout

The rally in financials has driven Goldman Sachs up over 3 percent in the last month, and Todd Gordon of TradingAnalysis.com says the big bank's run is far from done.

Gordon's bullish thesis lies with what he calls a "traditional cup-and-handle pattern" that he sees in the chart, one that is hinting at a breakout above a key level for the stock. This type of pattern refers to when a stock rallies to new highs, then pulls back and consolidates, and then rallies again.

"You get the little handle right here, and that's going to sort of act as a launching pad, I believe, up through this resistance level just around the $250 mark, which has capped the advances so far in 2017," he said Friday on CNBC's "Trading Nation."

Furthermore, on a chart of the 20+ Year Treasury ETF (TLT), Gordon sees a sideways consolidation that could be looking to break down. A drop in bond prices would mean high yields, which is seen as a positive for banks based on their trading business.

"Higher rates will be good for financials," he explained. "I think that will bring some volatility back into the market; we'll start to get some ranged expansion, and that's good for trading both investment banks."

As a result, Gordon wants to buy the April monthly 220-strike call for $33.25. In other words, Gordon is betting that Goldman Sachs could close at or above $253.25 on April 20 expiration. If Goldman closes below that level, Gordon would lose the $3,325 it cost him to make the trade. However, the trader emphasizes that he is buying in the money calls, lessening the probability of Gordon losing that premium.

However, he does want to establish a point at which to stop out of the trade, so Gordon takes a look again at the handle pattern that formed in Goldman.

"If Goldman backs below the handle of that cup-and-handle pattern, so right around the $235 mark, I'll cut the trade," he said.

Shares of Goldman are up 4 percent year to date.

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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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