Hide out in this soaring sector amid uncertainty in the broad market, says trader

TradingAnalysis.com founder Todd Gordon said that the market is potentially on the verge of a major move out of a consolidation phase, and there’s one sector that he sees breaking out.

Of the 11 sectors of the S&P 500, Gordon believes consumer discretionary is set to rally along with the broader market. The chart-minded trader suggested that this group of stocks could be a less volatile way to ride the market higher. Here’s why:

  • On a chart of the consumer discretionary-tracking ETF (XLY), Gordon points out that XLY needs to complete the fifth and final wave of the Elliot Wave theory. The classic theory, in this case, would mean that XLY would need to make one final rally higher.
  • Gordon then draws a line connecting XLY’s recent lows and duplicates the line to make a parallel channel. The trader sees XLY rallying up to the ceiling of the channel to around $117.
  • As a result, Gordon wants to buy the August monthly 112-strike call and sell the August monthly 117-strike call for a total cost of $1.77, or $177 per options spread.
  • If XLY closes above $117 on Aug. 17 expiration, then Gordon could make a maximum reward of $323. If XLY closes below $112, however, he would lose the $177 he paid for the trade.

The trade: Gordon is suggesting buying the August monthly 112/117 call spread for about $1.77, or $177 per options spread.

Bottom line: Gordon sees XLY rising above $117 on August expiration.

Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.


Trades to Watch

Trader Bios


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.

Read more