Here's the big problem with biotech: Trader

Biotechnology stocks are having one of their worst months ever.

IBB, the ETF that tracks biotech, bounced off a seven-day losing streak on Tuesday morning, gaining more than 4 percent. On Monday, the ETF closed down more than 6 percent, its biggest one-day tumble since 2011.

But according to one strategist, the group is about to face more challenges from the government, as lawmakers go after the pricing models of biotech companies.

"The politics of going after some of the pricing in the biotechs has started to escalate a little bit," Andrew Burkly of Oppenheimer said Monday on CNBC's "Trading Nation." "I don't know if this is an ETF trade anymore. I think this is going to be a more of a select name-by-name basis."

On Monday, lawmakers called for a subpoena on pharmaceutical company Valeant, criticizing price increases for its products. Shares of Valeant tumbled 16 percent.

Earlier this month, Hillary Clinton spoke out publicly against price gouging from biotech companies, after reports that one specialty drug spiked in price from $13.50 to $750 overnight. IBB closed down more than 4 percent following Clinton's comments.

Read More Biotech falls on Clinton 'price gouging' comments

However, Burkly said some individual names within biotech could bounce back from the selloff.

"If you go back a couple months ago, this was the ultimate in growth momentum," he said. "There's not a lot of growth out there to begin with, so a lot of investors are really flocking to a select few stocks that make up some of these ETFs."

Read MoreOvernight drug price hikes not isolated

Jonathan Krinsky of MKM Partners also said the recent plunge is a minor blip in the context of biotech's multi-year rally.

Given the 400 percent increase in IBB over the past four years, Krinsky said, biotech's most recent drop is "not that big a deal." He said as stocks sell off in the broader market, leading groups like biotech are usually the first to go.

"We're probably in the middle innings of that, and when you see that start to happen, the entire group gets sold broadly. It's indiscriminate," he said Monday.

Krinsky said Monday's drop is an "early sign of cracking," but he would look for another 10 percent drop before writing off the group's upward trend.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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