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Banks are on the brink of cracking a critical level

The chart of the financials has reached a very precarious level, according to TradingAnalysis.com founder Todd Gordon.

Not only is the financials-tracking ETF (XLF) down about 1.5 percent year to date, but Gordon says its underperformance relative to tech stocks makes it among the most vulnerable in the event of a market pullback. Here's why:

• The XLF has fallen back down to the $26.50 level about four times this year. Gordon believes any weakness in the XLK could trickle down to financials, and push the XLF tumbling below that level.

• Furthermore, big bank names like J.P. Morgan, Wells Fargo and Bank of America have also fallen and are struggling to make a comeback.

• As a result, Gordon wants to buy the July 6 weekly 27.5-strike put and sell the July 6 weekly 26.5-strike put for a total of 34 cents, or $34 per options spread.

The trade: Gordon is suggesting buying the July 6 weekly 27.5/26.5 put spread for about 34 cents, or $34 per options spread.

Bottom line: Gordon sees XLF falling as low as $26.50 by July 6 expiration.

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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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