Chinese stocks are getting slammed, and trader says the worst is yet to come

Chinese stocks have gotten taken to the woodshed, falling nearly 30 percent from their 52-week high. According to one chart-minded trader, the worst is yet to come.

"We have seen a lot of weakness recently, but the divergence that's been occurring between the S&P 500 and China is significant," Todd Gordon of said Tuesday on CNBC's "Trading Nation." "And it actually goes back prior to this period of tariffs that are being applied."

Despite a rough October, U.S. stocks have held up significantly better than their Chinese counterparts. In just this month alone, the large-cap Chinese stock-tracking ETF (FXI) has plunged 10 percent, amplifying the "monster divergence" Gordon said has been occurring virtually all through 2018.

Going back almost 10 years, Gordon points out that while the S&P 500 has been in a strong uptrend, the FXI has actually seen a triple top.

On a weekly chart of the FXI, Gordon says even more trouble is ahead. The trader says that FXI is about to dip to a trendline that has been in place since 2009, with the ETF possibly tumbling to around $32.

As a result, Gordon wants to buy the December monthly 36-strike puts and sell the December monthly 33-strike puts for a total of 60 cents, or $60 per options spread. This is a bearish bet that the FXI will fall as low as $33 by the Dec. 21 expiration, or another 15 percent from current levels.

The FXI was trading at around $39.15 on Wednesday.


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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 CNBC and 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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