The chart points to big plunge for small-caps, says one technician

The U.S. markets are reeling, and it's about to get worse for one group of economically sensitive stocks.

The Dow, S&P 500, Nasdaq and Russell 2000 are on track for their worst weekly losses in about two years, according to Todd Gordon of TradingAnalysis.com, who says the charts are pointing to more pain for the small-caps.

"We're seeing some pretty good weakness in these small-caps," Gordon said Thursday on CNBC's"Trading Nation." "They have the ability to really flush down."

Gordon noted that amid the market's wild swings, the Russell 2000 appeared to show the greatest amount of weakness. The small-cap index is down more than 3 percent year-to-date, while the Dow and S&P are both down around 2 percent.

How far could small-caps fall? To determine an exact level, Gordon draws a trendline from IWM small-cap ETF's 2009 lows, with the line ending at around $125. Since IWM was trading at around $147 on Thursday, this means that IWM could potentially see a 15 percent plunge from current levels.

But since there's a way to go before IWM would hit $125, Gordon wants to look at another key technical indicator before determining that IWM could plunge that low. He draws a line connecting the lows from 2016 and points out that with the recent fall, IWM has actually broken below trend, an occurrence that could serve as a warning sign for small-caps.

"We came back on the bounce, we've retested this resistance," he explained. "I think that's going to be the catalyst that gives us a potential push down on our decision point of $125."

For a shorter-term trade on IWM, Gordon wants to buy the Feb. 23 weekly 145-strike puts and sell the Feb. 23 weekly 140-strike puts for a total cost of 81 cents, or $81 per options spread. This means that should IWM close above $145 on Feb. 23 expiration, then Gordon would lose the $81 he paid to make the trade.

But should IWM close below $140 on Feb. 23, Gordon could make a maximum reward of $419.

The IWM was down more than 1 percent 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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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