One sector is beating tech this quarter, but one technician sees a ceiling

One sector has been tearing up the S&P 500 this quarter, rocketing to new highs, and it's not tech. Health care has been the surprise winner as the third quarter enters the home stretch.

The XLV health care ETF has marched 11 percent higher since the beginning of July, putting it on track for its best performance since early 2013. Stocks such as Regeneron, Illumina, Allergan, Pfizer and Merck have all torn higher with double-digit gains over a three-month stretch.

However, the group could hit a ceiling here, according to Bill Baruch, president of Blue Line Futures.

"This sector has been on fire and to play devil's advocate I want to take a look at where the resistance can come in," Baruch told CNBC's "Trading Nation" on Thursday. "If you look back at the 2015 high, there's a trend line that goes up to that January high in XLV and that comes in just above the market around $95 or $96 so there is some headwind there."

The XLV ETF is still a 2.6 percent rally from $95, a level that would mark a record. It last hit an all-time high on Thursday.

Pfizer looks to be the sector's biggest winner, said Baruch.

"It's already broken out above [its own trend line] and now comes in as support at $40 so I like being long Pfizer. It's bullish right now and I think it could trade up through $45," he said.

Pfizer last set a record on Aug. 20, but has since pulled back around 3 percent. It would need to add nearly 9 percent to its current price to get to $45.

Gina Sanchez, CEO of Chantico Global, sees the health-care sector heading even higher as a shift in the market gives it a tail wind.

There's a "rotation toward more defensive stocks and health care is a very defensive sector when the market starts to turn," she said Thursday on "Trading Nation."

Defensive stocks, such as health care, tend to outperform when investors anticipate a slowdown in economic activity. These stocks are often used as a safe haven for investors during a downturn.

"We're not saying that the market is necessarily turning yet but we are seeing some signs and some canaries in the coal mine that tell us that the market is moving away from these high-flying momentum names into more robust and defensive names," Sanchez added.

The XLV ETF has added 12 percent so far this year, above the S&P 500's 8 percent advance.

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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 CNBC and 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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