Charts point to near-term market top, trader warns

The S&P and Dow just posted the best month since January, but Todd Gordon of TradingAnalysis.com isn't celebrating.

"I think it's time to look at the possibility that we may be forming a near- to medium-term top," he said Tuesday on CNBC's "Trading Nation."

Gordon believes that the S&P 500-tracking ETF SPY could be forming a "potential double top" based on the charts as the SPY sits near its February high.

Looking at a shorter-term chart of SPY, Gordon points out that an Elliott Wave pattern had formed showing a steeper fall each time, which he believes is a sign that "sellers are starting to get a bit more aggressive."

As a result, Gordon wants to buy the August monthly 280 put and sell the August monthly 275 put for 95 cents total. If SPY closes below 275 on the Aug. 17 expiration, then Gordon could make $405 on the trade. If SPY closes above $280 on that date, Gordon would lose the $95 per options spread he paid for the trade.

The trade: Gordon is suggesting buying the August monthly 280/275 put spread in SPY for about $95 per options spread.

Bottom line: Gordon sees SPY falling below $275 on August 17th 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.

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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