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Cracks in the consumer trade are spreading, says top technical analyst

Top technician says the consumer trade about to crumble
Top technician says the consumer trade about to crumble

After soaring to new all-time high upon new all-time high, the safety trade might be in grave danger.

According to Cornerstone Macro Head of Technical Analysis Carter Worth, the cracks in the consumer trade are starting to spread.

"We know that this is the ultimate safety trade, along with utilities," Worth said Friday on CNBC's "Options Action."

"And utilities just accomplished something that's only happened three times — up 10 weeks in a row — and they got murdered this week. Staples [sector stocks] are also equally extended and the bet here is that these, too, are about to give way."

Just five names in the 33-stock sector carry 51% of their weight, meaning that any slips among the heavyweights could have significant ramifications for the rest of the space.

Despite how things look on the surface, Worth says one of those slip-ups could be lurking right around the corner.

"We've been in a perfect uptrend, and yet if I draw lines here, when we made the new high here, we did not make a relative high [to the S&P 500]," Worth said. "And so you have something of a double top. That's a negative circumstance and I think you're getting the divergence to suggest this is finally going to break trend and give up a lot of ground."

Perhaps more worryingly, Worth doesn't even think that perfect uptrend looks quite so perfect anymore.

"[The uptrend] is very precise, as is often the case, but notice we're compressing. We're not quite getting the bounce. That often gives way to that — it has a bit of a stall," said Worth.

So, if the staples do stall and break that uptrend, how far could they fall? As it turns out, the likelihood of a double-digit drop is fairly high.

"It's like 'paint by color,' yeah?" said Worth. "If you follow the schematic, the next directional move is [down], and I think that's what's coming. I want to fade XLP, I'm making the bet that its run is at an end."