well, hey there. we are live at the nasdaq marketsite. and guess who decided to join us -- carter and dan. they're back. welcome back. while we are getting ready, let's take a look at what's coming up. >> honestly week, out of gas. >> that's what some traders are saying about the market. and we'll tell you the sector that's signaling major problems for stocks. plus -- that pretty much sums up biotech today. and you know what? it could be why the nasdaq's not getting any respect. and what do these three men have in common? >> those people have never been in my kitchen. >> not quite, cliff. they all made a boatload on google and they have a way to make even more.

the action starts right now. ♪ darling you've got to let me know ♪ >> let's get right to it because two key serktsz are in trouble. transports selling off hard today. and the industrials making a 52-week low as well. did the rally just hit a major speed bump? and how can you protect yourself? let's get in the money and find out. dan, what do you say? >> we've been flagging the transports and industrials. these are two very economically sensitive sectors and they should have been performing much better all year long. especially as i think sentiment was improving about the u.s. recovery or the health of global growth in general. and they just haven't -- the stocks in the u.s. have not been confirming it. today we had one of the horsemen. biotech had a really bad day. this is a sector that had been deemed to be defensive, cheap, buoyed by consolidation, all this sort of stuff, and one of the largest components in the sector, biogen, was down 20% in one day. if you lose biotech, people, you lose a big one. you lose one of the anchors of this market right now, at least the bull market, that is. >> and the transports, we're seeing the commodity trade, and

that's certainly directly impacting a big swath of the transports like rails. you see coal with low prices, right? and you know volumes are down for the rails. >> it's definitely true that there's a whole segment of transportation that's going to be hurt by falling energy prices but there's a whole other segment that you would normally assume would be helped out by it because it's a big input or operating cost. when i take a look at names like fedex, ups, these are companies that should theoretically have a secular tailwind right now and should benefit from lower energy but there's obviously a lot of weakness. some of these names are trading at historically low valuations and that definitely is a little bit worrisome. i was a lot more bulled up last friday than i am this one. >> are you a dow theorist? >> no. but i think confirming the highs i think that's really important. we just talked about it. you had energy, transports, and now you have industrials. to me i think all of this really speaks to the fact that you have this surging dollar. you have commodities, industrial commodities that are imploding right now. they're absolutely imploding. and then you have large parts of the u.s. equity market that don't see very bother zblpd

before we send carter off to the charts we want to note that you correctly called the top in the transports. this is back in november 2014. and now you're looking at a name. one particular name. >> yeah. obviously it's traded true, meaning it's been weak and it stayed down. and the zenith of the transports was the day that opec said they weren't going to cut. but let's look at some charts and try to figure it out. the issue here is some of the big names that really haven't fallen apart look as though they're going to succumb as well. just as a sort of preamble here, this is a long-term chart. since the ronald reagan bull market gun. and you have such epic outperformance. this is not sustainable. that's the long-term setup that still is in effect, at least what i say. ups, this is a big name. obviously some of the rails have been quite weak, but this looks like it's going to finally join some of the real weakness. my eye, plain chart, sees this. right? so you can have no lines.

you can draw these lines. and again, each to his own. you can draw them anywhere you want. let's take those away and put these in. so again, you can see nothing or see something that's going to hover at these lows and break. that's my guess. or head and shoulders top. here's our same line. and the presumption is the break. you can leave the head and shoulders top and look at the trend line that's been in effect for three or four years. that gets us down to around 89, 90. and what's interesting about that level is it's also exactly where if you draw this trend line where we come into play here for our '07 peak. so a completion of this minor head and shoulders top to the trend line of the last four fiefrks years which is also the trend line of '07. we should be short ups here at a minimum 89, 90 or lower than

that. >> the fundamental story, mike, doesn't make sense to me in that energy prices are lower so that should be good for ups and then you get a data point like amazon's prime day. >> that's exactly right. there's a big disconnect somewhere here in the marketplace because obviously one of the biggest things that should be heng out ups and fedex would obviously be names like amazon, people getting home deliveries and of course their lower operating costs and interestingly enough ups is trading at about a 10% discount to its own hifrktdal valuation. not a lot of places where you would see bargains like that necessarily in this market which is obviously been in quite a bull market for quite some time. i look at this, though, and we've seen many instances where the tale of the tape has told us the tale before we actually got the news afterwards. one has to wonder. and ups has historically had a couple operating hiccups, which we've seen in the christmas season a couple years in a row. and actually they've made those mistakes both ways. so i think the way to play this is to look at a put spread. i'm look out to ovth. i'm looking at the 92 1/2, 87

put spread. you can pay $1.35 for that. $2.25 for the 92 1/2s, sell the 87 1/2s against it for 90 krebts. lower strike put there. this is not a name that's hugely volatile that's the reason we're looking at a put spread and giving ourselves a bit of time for this play rout. >> sxurn going to the holiday season or even black friday for that matter for this trade. >> i think you entertain fedex here. they've both missed recently in the last month or so here. they're going maybe into a seasonally weak period but with energy prices the way they are i don't get them. i think these are tough presses. if you want to press this short, especially in a ups that's down so much i think you look to define your risks the way mike's doing it zplip want to button this up by asking you the question are you a dow theer invest that do you think the trouble in the transports signals more trouble ahead for the markets? >> it's interesting of course. that was a different era, late 1800s. we'll have drones in the dow jones transportation average at some point of course. but what's so important about this is it's not random where the transports stopped going up. it was the day again that opec

said we're not going to cut. a lot of this weakness has to do with the rails. but what's interesting, even as oils come down, the airlines which tried to benefit really aren't benefiting. so you've got no part of this aggregate that's working, not the trucking companies, not the rails. fedex looks identical. biotech stocks sold off sharply today. shares fell off 4%. meg tirrell's at the new york stock exchange with more on what drove this index lower. meg. >> hey, melissa. well, the big thing that drove the index lower today and this week was biogen. if you look at the overall performance of the nasdaq biotech index it was down 5 per for the week. there was only one company that performed worse than biogen this week and that's zoma which lost 79% of its value on a failed clinical trial of its lead drug. now, with biogen that's a huge name, obviously. earlier this week there were some mixed reactions to its alzheimer's data but today it was really the earnings report and the lowered forecast for the year for its multiple sclerosis

drug that god people very worried. now folks are saying saying if that drug is growing more slowly and we're not totally sure about the alzheimer's drug where are we going to get growth in biogen. people are starting to beat the m&a drum for biogen. however, one bright spot is exilixis. that stock going up 43%. the best performer in the nasdaq biotech index for the week. but looking ahead to next week we have a biotech and pharma earnings bonanza on tuesday. pfizer, merck and gilead all reporting. now, gilead kind of the same theme as biogen, wonder whog they're going to buy. these are the companies biotech investors are starting to ask now. even of these big biotechs they're asking where the growth is going to continue to come from. >> is there any reason to add these earnings from gilead next week? >> a lot of folks think there might be because they're competing in hepatitis c. however, gilead is the preferred name there. they have a drug that people like a lot better. folks did worry about some of the comments as you and i discussed earlier about a slowdown in hepatitis c and

that's been discussed for a while. that's why the m&a talk is so loud right now. >> meg tirrell, thanks a lot. >> thanks. >> so dan, what does this mean for the nasdaq? >> listen, if you look at the ideas 100, i mean, we often think tech and we know that some of the largest tech names, google, apple, microsoft make up a disproportionate amount of the weight but you also have a gilead, you have celgene, biogen and you have amgen. so today you have one of these we just mentioned before was down 20%. closed on the dead low, people. its round trip the entire move of this last 52 weeks and now it's down 37% from the 52-week highs in march. that is horrible action. just to kind of reiterate what i'm saying is a lot of the other stocks yes, they're cheap, they're defensive and technically they look and feel okay but if you lose this part of the bull market you're losing a massive group of leadership. so when you think about technology on the flip side of it we know that apple's been range bound and may remain rangebound. i don't think the gains in amazon and google in the last week are very constructive. while facebook's coming and

let's see how that responds. but i don't think that seeing stocks of that magnitude up 15% breaking out to all-time highs, that speaks to narrowing breadth to me. it speaks to people really trying to concentrate and figure out just where they can hide. >> it's interesting that meg mentioned exelixis because this is an unhealthy sign how this stock did a 50% pop. and actually it's reversed a lot of just today. i take a look at that. and people are having a very hard time figuring out where these things are valued. that's actually dangerous. it can move down just as quickly as it moved. you p maybe even more so. >> i want to ask carter about the instruments you're using, the qs. >> the top ten holdings make up $2.7 billion in market cap. some have performed really well here. but the trade i'm looking at is almost you can use it as a hedge. for a lot of you guys who own apple and some of these large cap biotechs, option prices are really cheap in the qqq. the nasdaq 100. and very simply, the etf broke out to a new 15-year high this

week and if failed. what i'm looking for is a retest of the 200-day moving average down toward 105. so today when the etf was about 112 i bought the september put paying $2 for that. my maximum rhys sak that $2 between 108 and 110. and below that i have potentially a lot of profits. what i would do with this trade here is this. implied volatility, option prices tikds up as the stock starts going lower i will look to spread this by selling a lower strike put of the same expiration and create a put spread. therefore, just kind of minimizing my risk and defining a range. 100 on the down side over the next couple months looks like a reasonable target. >> what do the qs look like, carter? i ask this because the launching point was a weakness in ibb but the qs a third of the market cap -- >> we have big names like amazon and google in it obviously. but it's quite similar. about a week ago we did xlk. and this is almost 100% correlated to that. and the premise was weakness. in fact we almost got stopped out.

hit 7% against 8 to 10 being the point at which you have to walk away. but i'm with dan on this. the presumption is that let's just say up side is nil because we've lost apple. google can't help from here. amazon can't help from here. and if we get any kind of drawdowns in biib then sideways are down. i think you've got a good thing and dovetails with what we're trying to do. >> the other thing is you should be looking to do one of these situations where you're buying an outright put on the index and look to spread. even though we did see a little 307 in the vix today, gym plied volatilities on some of these indexes like the qqqs and spy. still look cheap to the spread trades like we want to in some of the single names. >> last word. >> carter made a really good point. amsn, google, they're not going to help from here. you know wholesale? oracle, intel, microsoft. fundamentals really bad out there. >> send us a tweet t to @optionsaction. if it's nice we might read it later on in the show.

give it a try. for everything else check out our website, optionsaction.cnbc.com. hottest options news, videos throughout the week and exclusive trades. so check it out. here's what's coming up next. ♪ a double pleasure's waiting for you ♪ >> that's because dan, carter, and kuo doubled their money on google. and they have a way to make even more. plus, it's the one stock that's signaling big trouble for the rally. we'll tell you what it is and how you can protect yourself when "options action" returns. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

i've got the ceo. and the thing you must be paying attention to before you make your next move. "mad money" is next! me move stu what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. signet jewelers replacing

directv in the s&p. after the close of trading on tuesday july 28th. after the bell of course shares of s.i.g. let's see how they're trading after hours. nice pop, up 2 1/2%. take a look at directv. of course the acquisition by at&t being approved, up just about two cents. melissa, back to you. >> mary thompson, thank you. it is make or break time for social stocks next week. facebook, yelp, twitter and linkedin all reporting earning but carter is sensing trouble for one of those names. do tell, carter. >> this is as wild west as it gets. in many ways you could call this just a coin toss or outright gambling but let's try to figure it out. let me draw some lines to clean this up. quarterly periods. of course the last six. and what's important here is the following. every single quarter twitter has beaten. except for one, which was in line. but no misses. but regardless of what the results have been compared to expectations look at the volatility. this time it moved down 24%,

down 7. up 20, down 20. literally almost, according to us. you can make your bets here. any which way. and plenty of people like it on the long side. let's just try to see if we can figure anything out from the chart. here are of course all of these gaps. which means somehow it's unanalyzable fundamentally, technically people have gotten it wrong or right or been over-under. that wasn't a gap but of course it was the last big drop, that 24 percenter. so my guess is that we're -- because of the way the market's acting, because how we're hovering right at these lows, because the last one, the most recent one was a bad one, that we will get one to the down side. in a literally 50-50 kind of thing i'm going to take the 50-50 down side on this. >> only carter braxton worth can see a situation is unanalyzable and then give us his analysis of that unanalyzable situation. >> i'll go along with carter on

this but i find it really hard to press ashore with the stock, essentially trading at its post-ipo lows right here. we've seen a couple situations. dan has pointed them out. where actually we've been better off thinking of getting long the stock here. but typically after earnings this is a stock that has as he pointed out moved extremely sharply. there is a way we can make a bet on a move of about that magnitude, maybe 15% to the down side, without spending a whole lot of premium. and the way i'm inclined to do that is looking at the august 34-30 one by two put spread. spend $2.10 to buy the 34 put, spell two of the august 30 puts at 1.60. you're only outlaying about 50 cents. the down side is if it blows through the lower strike you could be forced to buy the stock but your down side break even is actually going to be down just below 26 bucks and i have a hard time believing we're going to get much below that by august expiration. >> is there a wrench when this time there's an interim ceo and we could be a headline away from a --

>> they could be given a pass. i don't think knick has any expectations there could be a great quarter. they nuanced some metrics that just aren't great. things aren't going in their direction right here. to buy twitter right here or continue to own it you have to believe in the future and i have to make one point the enterprise value of this company is more than what facebook paid for what's app a year ago. i still believe there's some important strategic value here. in the near term whether it's carter 30s to the down side or it's in the high 30s before we get some real material information and i just want to add one more point. i know a lot of bulls were thinking that -- including myself that google really needs twitter for a whole host of reasons i think google's rally over the last month shows the investment community that they don't need a lot more outside of what they're already doing. so that could be something that could be put off for a bit. >> let's bear in mind if you start getting below the $30 level even down to 25 bucks this company has traded to 13, $14 billion valuation. there is an asset for somebody. i'm not saying the shareholders are going to be interested in selling at that price but the fact is there would be

interested buyers and that does create a floor. coming up next, dan, kuo, and carter, the trio here, made a killing on the google rally. we'll tell you how they're going to make even more cash, right after this. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

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for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. time now for the double up side call. google shares are up more than 20% in the past two weeks. and that's great news for everybody here on the desk. take a listen. >> we're playing for a move out of this range up to just where we were at 580. >> the way to play this is to go and buy a call spread that's going to mitigate some of that higher priced options premium. i was looking out to september at the 560, 600 call spread. >> what i want to do is set up owning calls for that july q2 report. when the stock was 550 today. i sold the may 29th weekly 570 call at two bucks. and i used that proceeds to help

pay for the july 570 call. >> okay. so both of these guys, mike and dan, got the direction right but used different strategies. so you start with mike here. what do you do with your call spread? >> we want to take profits for sure on this call spread. the stock had that rip-roaring day and then it reversed almost immediately. that doesn't look so great to me. besides which this thing can only be worth $40. it's worth 37 right now. so you're basically going to -- if you don't take it off, you're risking 37 to try to make an additional three. that doesn't make any sense. if anything, i might even be inclined to sell some up side call spreads here. i don't think the stock's going to rip through that high that it hit. >> so use a call spread. use a call calendar, put that on back in may. it expired, what, last week? >> yeah. we talk about these strategies a lot and this was really interesting. the idea of just owning premium, especially in a stock like google that had basically been flatlined at 550 for a long time. that's an expensive way to express a bullish view by owning calls. in the calendar situation what we did was sell a shorter call to help financial the longer dated one.

i was targeting that earnings event. that's a great use of it. i know oftentimes people think you're trying to thread the needle a little bit. especially when it works out really well. in hindsight you are. but oftentimes long premium strategies are a tough way to make money. and at least you're reducing your risk. >> in this particular instance a lot of times when we talk about calendar spreads you're trying to take advantage of the fact that the options right around the catalyst are going to decay shortly after it. but dan actually correctly by the way identified this as i acatalyst that's qul y. he was selling that near dated option so he got to own that call outright and actually got all of the bang out of it that you possibly could. that was a better trade than the vertical spread that we ended up putting on. >> now what for google? >> that's just it. giving mback $75 in the last fe days. the gap said -- down from 715. it's an excessive move presumptively and there has to be some giveback here. >> coming up next, your tweets and the final call from the options pits.

here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

don't even think about starting the weekend before i arm you with next week's game plan. plus finally time to by semi? i've got the ceo. and the thing you must be paying attention to buff make your next move. "mad money" is next! i'm here at the td ameritrade trader offices.

ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings.

impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. time for one tweet. tom asks us "i own regeneron august 7 515-540 call spread. should i spread a 515-565-610 butterfly if i can do it at no cost?" >> the stock is essentially trading right at your short strike. so you can try to wait for time to go to your side or you can try for a trade that will give you a little more up side which is what that butterfly would do. if you can do it at cost i think that's an okay wan. >> carter braxton worth. >> certain stocks to be wary of. ups is one. twitter is one. among others. >> believe it or not, i think what you should be looking at is called in spy right here because they remain cheap and you could take off some of your equity portfolio and use this as a

substitute. you can use maybe 2% to 3% of your portfolio to buy some in december. >> stock replacement. nice. >> believe it or not, i think you should look at puts in september. >> thanks for watching. i'm melissa lee >> looks like our time has expired. i'm me lis salih. meantime, "mad money" with jim cramer starts now. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i want fewer days like today. my job is not only to entertain but to explain and tell you what's going on. call me at 1-800-743-cnbc. or tweet me @jimcramer. when i thought we were done worrying about the