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Emerging markets likely face much more pain, and this is how one trader is dealing with it

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This is how much more pain is ahead for emerging markets, technician says

As U.S. markets have plummeted this month, pockets of the world have had it worse.

The EEM emerging markets ETF, which tracks companies in countries including China, South Korea and India, has fallen nearly 7% this month, a steeper decline than the 4% drop on the S&P 500.

This isn't a new development, though, says Todd Gordon of TradingAnalysis.com.

"The international markets have been a major source of volatility and also underperformance over the last eight to nine years," Gordon said on CNBC's "Trading Nation " on Thursday. "You can see what a major huge divergence emerging markets are showing compared to the S&P."

Over the past 10 years, the EEM ETF has increased just 9% compared with the S&P 500's 184% surge. Years of economic expansion in the U.S. and a strong U.S. dollar that put the pressure on commodities have deterred investments in emerging markets over the past decade.

Gordon expects the strength in the U.S. dollar to continue to squeeze emerging markets.

"We are still seeing dollar outperformance here, which is typical in risk aversion safety times, so we're seeing the dollar move up. A lot of the emerging markets have debt denominated in dollars, which obviously would make the cost to service that debt much higher, plus it pressures the commodities due to the inverse relationship of dollar and commodities," Gordon said.

To take advantage of expected further downside for emerging markets, Gordon is using a put spread by purchasing an October 38-put and selling an 34 strike-put against it for 69 cents. This trade makes money if the emerging markets ETF breaks below the 38 strike by October expiration.

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