Biotech's breaking out, and here's why some market experts think an even bigger rally is ahead

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.

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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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