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The hot stock that one market bear is buying

Technical analyst Todd Gordon is bearish on the market, but there’s one stock he can’t resist.

Nvidia is up about 52 percent year to date, although it has had a recent setback. The TradingAnalysis.com founder says the charts are hinting at a possible breakout for semiconductors as a group, and the chipmaker is particularly well positioned for a comeback.

“[The semiconductor ETF (SMH)] is hanging inside of this little range here that we’ve seen for the summer, and it’s possible that we’re going to break higher,” Gordon said Tuesday on CNBC’s “Trading Nation.” “The vehicle of choice in the chips, no surprise here, is going to be Nvidia.”

Shares of Nvidia are down almost 7 percent from the all-time highs hit earlier this month. Gordon points to an “inverse head and shoulders” pattern that he says is suggesting a bullish reversal for the stock. The trader believes that the “shoulders” of the pattern, which are sitting near $160, are forming a “support shelf” that could send Nvidia back above $170.

As a result, Gordon wants to buy the September monthly 165-strike calls and pair that with the sale of the September monthly 170-strike calls for a total of $1.62, or $162 per options spread. This means that if Nvidia were to close below $165 on the Sept. 15 expiration date, Gordon would lose $162, the premium he paid to make the trade.

On the other hand, if Nvidia closes above $170 on Sept. 15, Gordon stands to gain a maximum reward of $338 on the trade.

However, despite the attractive risk reward, Gordon does establish a stop for himself in order to mitigate risk.

“If [the premium] gets cut to about $80, let’s cut the trade, it’s obviously not working,” he said.

The SMH is currently up 20 percent this year, meaning that Nvidia is far outperforming the group.

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