Biotech stocks are so bad they may be good: Technician

"Biotech stocks are so beaten down that it could be time to buy them, technical analyst Ari Wald says."

"The question we're asking ourselves [is]: Has it become so bad it's good?" Oppenheimer's chief technician said Tuesday on CNBC's "Trading Nation."

The iShares biotechnology ETF, IBB, has retraced 50 percent of its gains since 2011, and that's a sign that the market-cap weighted fund may be stabilizing, Wald said. IBB has fallen more than 20 percent in 2016.

However, Wald said it's still too soon to write off the broader downtrend in biotech stocks. As evidence, Wald points to the fact that the IBB is still below the technically significant 200-day moving average.

"We're not ready to make the call [that] this is a long-term advance," he said. But "for those that can cut ties quickly and as needed, we see a pretty nice setup here. ... I think that's a risk I'm willing to take, because I see some nice upside here."

For a short-term trade, Wald recommends buying IBB with a close stop on the trade at $242, the level at which he sees the ETF stabilizing.

According to Max Wolff, chief economist at Manhattan Venture Partners, biotech stocks will likely outperform as the broader market remains weak this year. The defensive rotation into health care may provide a boost to biotech, he said.

Wolff also warned investors to beware of the danger that comes with riskier small-cap biotech names versus established giants.

"It's a risk trade, but get into the shallow end of the risk pool and you might have a chance here, because people do rotate to health-related [stocks] when they're scared," he said on "Trading Nation" Tuesday, a day that was dominated by news of terrorist attacks in Brussels.

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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.

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