As transports stall, technician says this stock could get hit hard

Transports stocks are hitting the skids.

The IYT transportation index, which holds names including CSX and United Continental, is down more than 3 percent so far this week, tracking for its worst since December. The XTN S&P transportation index has dropped an even sharper 5 percent.

Weakness in the group has caused some technical damage to its charts, said Todd Gordon, founder of TradingAnalysis.com.

"We've begun to roll over, begun to fail here at these old highs, starting to back away," Gordon said Thursday on CNBC's "Trading Nation." "There's a common theme that we're seeing in the market here between a lot of different indexes and sectors which is potentially a head and shoulders reversal pattern."

Such a pattern is a typically bearish signal which suggests the end of an uptrend. The XTN ETF formed a left shoulder in early 2018, a head in August, and a right shoulder in December and February.

There's one transports name that looks especially weak to Gordon: FedEx.

"This chart is obviously more in a stronger downtrend than what we saw in the transports," he said. "We have a case of a sector that is underperforming the index and a stock that is underperforming the underperforming sector."

To take advantage of expected weakness in FedEx, Gordon is betting on downside heading into earnings on March 19. The options marketing is pointing to an $11 drop from current levels following earnings, implying a 6 percent decline.

"I want to go ahead and buy the put that is down around that expected move," he said.

Gordon is buying the March 22 160/155 put spread for around 67 cents. This is a bearish bet that FedEx will drop to $155 before the contract 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 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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