The biotech rally may be just getting started.
That's according to Piper Jaffray technician Craig Johnson after the biotech-tracking ETF IBB rallied more than 3 percent on Monday on yet more merger talk in the space.
Johnson believes the group is about to test some key levels that could point to even more upside.
On the Nasdaq biotech index NBI, Johnson points out that the index has retraced much of its correction since Oct. 1 and is poised to bounce back to its 200-day moving average. That will be the next resistance for NBI, he said.
If it does hit that average, "it's going to set the shares in the index up for a move back toward the old highs," Johnson said Monday on CNBC's "Trading Nation."
Johnson noted that many biotech names are also starting to recapture their 50-day moving averages, and he said a "pickup in momentum" as they do so could point to an even bigger breakout.
But Chantico Global CEO Gina Sanchez sees some fundamental concerns with the space. While she agrees that the latest cycle of deal talk and an increase of insider buyer are positive for the sector, ultimately the negative revisions and news facing the group could temper the rally.
"That's really kind of the headwind that these elements are up against," she said on "Trading Nation."
"The M&A cycle and insider buying [are positives], but you just have to see the actual revisions start to stabilize before you can really feel confident about this sector."
The sector has had a strong start to the year, surging 10 percent since the first trading day of 2019.