Health-care sector is still a buy despite recent sell-off, says technician

The best-performing sector this year has caught a cold.

Health care has gotten swept up with the broader market selling, putting it on track for its worst month since February 2009 and its worst quarter since 2015. Despite the move, Craig Johnson, senior technical research analyst at Piper Jaffray, is still calling the sector a buy.

Looking at a chart of the XLV – the health-care tracking ETF – relative to the S&P 500, Johnson noted that despite falling more than 8 percent so far this quarter, health care is still outperforming the market.

"What I find interesting is when I look through our work and kind of look back through the individual sectors, what I'm starting to find is many parts inside of the health-care sector are making 26-week relative strength new highs. So not only has it been utilities and REITs making 26-week new highs. I'm seeing pharma making a new high, which isn't surprising for people, but I'm also starting to see things like cardio, I'm starting to see orthopedics, and some of these names are starting to make relative strength new highs," he said Friday on CNBC's "Trading Nation."

Johnson added that while the market is in search of new leadership, there are several names in the health-care space holding on to their long-term uptrends.

One stock on Johnson's radar is Medtronic, which he believes is a name to buy given that the medical device company recently broke out of consolidation. Shares of Medtronic are up 15 percent this year. Given the recent breakout in the stock, Johnson is targeting a move up to $120, or nearly 30 percent higher than where it is currently trading.

"We still think there's some names here to be bought, and we would be buying the health-care names in here," Johnson said, referring to the sector.

Gina Sanchez, CEO of Chantico Global, emphasizes that health care's fundamental story also holds up.

"The fundamentals in general for health care look very solid," she said Friday on "Trading Nation." "We have seen health-care spending growing this past year, and you've also been seeing a huge number of jobs being added to the health-care sector in anticipation of continued demand for health care."

Sanchez also believes that political gridlock over health-care policy actually benefits the sector as well, as it would leave many of the fundamental structures that gave the group a boost intact.

The health-care sector is currently up almost 7 percent year to date.


Trades to Watch

Trader Bios


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

Read more