Bet on this one sector during third-quarter earnings season, trader says

CNBC Finance 3 weeks ago

As we enter the thick of third-quarter earnings season, TradingAnalysis.com founder Todd Gordon sees a rotation benefiting one group of stocks.

"We've seen a rotation out of the defensive sectors such as real estate, staples and utilities which were bid up in response to falling bond yields. ... What we've seen, though, is a rotation into technology which is fairly well progressed as we're moving into the heart of the earning season. We're also seeing a resurgence in communications," Gordon told CNBC's "Trading Nation" on Tuesday.

The communications services and technology sectors are among the best performers for the S&P 500 this year. Tech is up nearly 30%, while communications has added 22%.

"We're seeing the XLC, the sector SPDR that tracks the major communication stocks, sort of trail behind technology and I think they're about to possibly move into the limelight," said Gordon.

To benefit from that rotation, Gordon is making a trade in the XLC communications services ETF, which tracks sector players including Facebook and Disney. He says this is the sector to be in as the earnings come rolling in — Twitter and Comcast are scheduled to report Thursday, and Alphabet, AT&T, T-Mobile and Facebook are set for next week.

In particular, Gordon said Facebook, Alphabet, Charter Communications and Verizon look good and primed to break out.

"I'd like to keep it simple here and just put an options trade to work in the XLC to capture an upside move," he said.

To do that, Gordon is buying an in-the-money call that allows him to buy the XLC ETF at the strike price before expiration. He is purchasing the $49 call with November 15 expiration for $1.85 per option.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.


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