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One sector could benefit from this market rotation, trader says

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One sector could benefit from this market rotation, trader says

The U.S. economy contracted in the first quarter, but signs in the stock market suggest investors are looking for it to gear up again soon.

Todd Gordon, managing director of Ascent Wealth Partners, says a market rotation on a sector level could offer some clues.

"We're seeing a lot of rotation indicating that America is coming back online — sectors such as transportation, material, energy and industrials are leading the charge here as we're getting some pretty interesting contrasting performance by the other sectors," Gordon said on CNBC's "Trading Nation" on Tuesday. "The market is starting to price a 'go out into the workforce and reengage in traditional American business' [environment]."

At the same time, so-called stay-at-home stocks have begun to pull back after impressive runs. Gordon notes stocks such as Activision, Netflix, DocuSign, Zoom, Teladoc and Amazon have sold off this week. 

"I want to see what earnings do but one sector that's really sticking out to me here is XLB, which is those materials. Obviously, materials are going to be the foundation of going back to work in the manufacturing sector and there's a lot of carry through there in the XLB," said Gordon.

The XLB materials ETF, which holds Sherwin-Williams and DuPont among some of its largest components, is up nearly 8% this week. Gordon says its 200-day moving average at just over $56 is "in sight."

"I take the XLB quite positively here," said Gordon. To take advantage of a move higher with options, "maybe go out and look at the June monthlies. What I want to do is sell a put, take that premium, which is a bullish strategy, … and go up and buy a higher call. ... If this sector continues to go, we will make money from the put we sold, that's credit that's in our pocket, apply to the purchase of a call and if we move up through that call strike, you could exercise that call, take the liberty of the shares. So, if it works, you're essentially being paid to buy the stock that you might want to buy anyway."

Gordon is selling the 52 put with June 19 expiration for a credit of around $2.76 and buying the 57 call which costs around 62 cents.