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These two beaten-down health-care groups could be set to bounce

Health care gets left behind, but technician bets on a bounce
Health care gets left behind, but technician bets on a bounce

Health-care stocks have caught a cold this year.

The sector is the worst performer of the S&P 500 this year with only half the gains of the broader market.

But, Newton Advisors technical analyst Mark Newton sees the beginnings of a recovery for the group.

"In the last month this group has actually been the best-performing sector of any of the major groups," Newton told CNBC's "Trading Nation" on Wednesday. "Just in the last couple of weeks, you've seen this entire downtrend since late last year be broken in health care relative to the S&P," he said of a trendline stretching from its peak in December to mid-May.

Two subsectors within health care look especially primed to rally, says Newton.

"Biotech stands out as being very strong," said Newton. "I do think that the group can really move up to the high $80s, lows $90s when you look at that ETF, the XBI for the biotech group, and so that's certainly one area to play this."

A move back to $90 on the XBI biotech ETF would mark a 3% gain and take it to levels not seen since April.

"The other is medical devices. This is the strongest part of health care," said Newton. "We've also moved back to new high territory in the medical devices. ... It's really been the medical device stocks that have been prudent to really stick with."

However, Joule Financial Managing Director Quint Tatro says after a 7% rally in the sector this month, it might be too late to jump into health care.

"We continue to watch Big Pharma and specifically stocks like Pfizer, Eli Lilly and Merck. We own all three, but I've got to tell you they're not cheap stocks. These are stocks that are trading at valuations that are historically high," said Tatro.

The XLV ETF, which holds Pfizer, Eli Lilly and Merck, trades at nearly 16 times forward earnings, its most expensive since April.

"I would not chase this group. If you own it you can stay long, that's fine, collect your dividends. But I'd wait for a pullback to be a buyer here, because again they are not cheap stocks," said Tatro.