guys, really appreciate it. carol and kayla today. that does it for us on "closing bell." "fast money" begins in moments. melissa lee, what are you guys targeting? >> there was a notable stock that sat out today's rally, kelly, and that would be the n in fang. netflix. finished the day lower by a third of a percent but it had been down as much as 4. we'll get the trade behind that outlier today. >> defanged. over to you guys. >> "fast money" starts right now. live from the nasdaq marketsite overlooking times square i'm melissa pleep your traders on the decemberric tim seymour, steve grasso, brian kelly and dan nathan. tonight on "fast" netflix's rough week. the stock has dropped more than 10% since monday as the competition among the streaming heavyweights heats up. but is the real challenger now coming from hulu? we've got a special report. plus the man who called the collapse in gold is back again, and this time he's gotten an even bigger prediction for oil. we'll tell you where he sees the volatile crude trading heading next. but first to the rally we saw today stocks closing sharply higher recovering from the worst start to september in 13 years. the nasdaq officially out of correction territory.

are stocks finding a floor or do we have another leg to go? what did we like and what did we not like about today's rally, grasso? >> well, i feel that with china closed you really can't make an assessment. over the next couple of days china's going to be offline so to speak. so if you've had the major catalysts in my opinion, which has been china that took the market down, i don't think you could really make the case that this recovery or this rally is anything worth buying into. i think it's more or less guys being bored and the old saying on wall street is never short a dull market. so you don't sell it if there's really no events going on. if the event was china and they're offline, i don't think you really could put too much credence. >> sort of float into the jobs report? >> i wouldn't say there's nothing going on. i hear what steve's saying, and china's been the culprit. and actually what started out is asia traded great last night. if you think about it they almost shrugged off all these interpretation that's china's pmi number and korea's exports numbers meant that asia was collapsing. so when i look at the trading today i was very encouraged that high quality traded well. i wasn't surprised.

i know we're going to talk about a fang member. and some of the fang's a little expensive. >> high quality like what stocks? >> even apple. look at the rally back. people had a chance to look over valuations and say hey, where is it a safe time to buy stuff that got a little oversold? i think that's what happened today and i think tomorrow we have an ecb report, friday we obviously have a payroll report. today we had a beige book that i think the fed was looking around their districts and saying the world's not so bad. that is my view. that's how the market traded today. >> it was clearly technology that led the rally. it's interesting the divergent -- and i don't want to say divergent because both were up today. but tech was up a lot. >> it was. >> and the xlf financials were up but not nearly as much as the overall market. i think that stood out. >> the financials are a bit challenged because think about it, let's just say the fed decides to raise at the end of september. they're probably one and done. that's about as steep as the yield curve's going to get. that's about as good as it gets for financials. they're a bit challenged. i will tell you the one thing i did like about today's market, everybody's so negative. i can't tell you how many research reports, i saw a plethora of research reports today. yes, a plethora. >> a veritable plethora.

>> why is everyone talking about -- >> why is it one and done, though? because if we're really going off real metrics and all their metrics points to rates raise, i had a conversation with a client, manages billions and he said why is it off the table for more than one if we're really going on a calculus? >> i don't think anybody's thinking not more than one, but one this year and maybe delayed into nexter another one. >> first of all, if it is even one, it's the wrong thing to do. and it will most likely create financial instability. that's the problem here. and i agree with you, we're not looking at a massive rate increase over a multiple period of time. but i think the market right now is saying even if there is one it's one for this year, maybe next year we'll kind of look at the data and in my view the data's probably going to be getting worse over the next three months. >> to your point on -- when you hear bill gross of janus saying to investors move to near car, almost all cash and then you

hear calsters considering moving 20% of their portfolio away from stocks that does seem to signal a belief that perhaps there could be more volatility ahead. >> i think what it speaks to is a sea change. the way people used to think about equities. and you think about the low volatility environment we've been in now for three years really if you think about the 10% correction we had in the s&p 500 was the first time excluding last october, was the first time since 2011. so to me what i see here is a lot of technical damage has been done in a very, very short period of time. and when you talk about sentiment and you talk about some of the biggest movers of assets like you just mentioned, these huge pension funds and pimco or janus, i guess, to me it could signal just a change about how people feel about investing in equities after such a long run. so one and done or they don't do it. i think the fed is damned if they do, damned if they don't in the very near term. and i'll just mention back to the technical damage that's been done, look at the s&p 500. 2050, which was support for most of this year, is now going to be

massive resistance. i think we probably fail there. and then the nasdaq composite, 5,000. we're about 5% of the way from that. when you look at today the rally of 2 1/2% in the nasdaq, we could be there in days. so i'm with grasso that if you see u.s. equities rally back toward those resistance levels with china closed, i think you sell them. i think you use the opportunity to take some profits. >> got a news alert on bill ackman's pershing square. let's get to mary thompson in the newsroom. mary. >> reuters is reporting that ackman's pershing square hedge fund was down 9.2% in august. for the year it is off a tenth of a percent. it appears mr. ackman had made some decent trades toward the end of the month. keep in mind that back on august 27th our own kate kelly reported that at that time ackman's fund was down 13.1%. so ending the month down 9.2% in august according to reuters. of course it was a tough month for the hedge fund industry. the s&p was down over 6% and some of the other big names like david einhorn and dan loeb with

their funds down over 5% for the month. melissa, back to you. >> thank you, mary thompson. we were talking about this yesterday, some of these crowded hedge fund trades that have gotten absolutely decimated in this recent sell-off, names like a sunedison or disney. we're not just talking about smaller solar names but big cap blue chip names. >> we're also talking about hedge funds. a couple of these guys take very concentrated positions in names and whose investors, god bless them, they built businesses where they've prov to people you don't have to trade any month over month. i don't think that the sky is falling over there. and i think if you look at hedge funds, a lot of guys are probably in trades that they think over a couple months are going to play out. >> the market may have surged today but one man says it would actually be a good thing to retest the lows before heading higher. paul schatz is the president of heritage capital. great to have you with us. when you say retest lows you mean 1867 kind of low? >> retesting of lows comes in many ways and sizes and forms. but as they -- you guys mentioned earlier there's a lot

of technical damage done. we're only down 12% plus from the high. but clearly there's been some real good damage. we saw -- now they call it a crash. second most overused word in the lexicon after bubble. but we saw a mini kind of crash, you know, within two of an all-time high. there's got to be some reparation to be done at the bottom. >> so what kind of -- what lows are you talking about when you say we need to retest the lows here? what level are you talking about? >> so on the s&p we were looking at maybe 1,000 points -- i'm sorry, 100 points lower from here. dow, you know, sub-15,000 again. again, if you pull up the first chart, the crash of '87 was highly emotional, 20% in a day. that did an amazing amount of damage and it took six weeks to fix and it thrashed around very volatile and the market never turned back went straight up again. you go to the mini crash of '89, october of '89 which was led by ual and donald trump and

american airlines, the deleveraged buyout blowup. that was really a 6% one-day decline from a recent high and that recovery was pretty quick because there wasn't a lot of technical damage done. fast forward to 1994, where you have the largest decline in three years but that was only 8%, similar to today. and in '94 we had multiple retests over the next couple of months before the market kind of headed higher. '97, if you pull that chart up, that was really a one-day, the asian contagion. we had a one-day crash, at that time the largest -- >> the bottom line here su think we're going to retest the lows on the s&p 500, that could be 100 points to the down side, which would be essentially the lows of this most recent sell-off for 1850, 1860 or so. but from there you think that we'll actually move higher after we work out that sort of basing

period? >> mark twain said history doesn't repeat, it rhymes. we're going to have some kind of rhyme between 2011's low and 2010's low from my seat. and then from there, crashes like this off all-time highs, they're not how bear markets start. so from where i sit we're going back to all-time highs. maybe late fourth quarter, early first quarter next year with a very likely chance of the dow hitting at least 20,000 within a year from now. this bull market's old and wrinkly and not healthy, but it's not over yet. and the 10% decline happens right before the last glorious leg, the narrow leg where a few stocks and a few sectors lead the way. but it's a pretty strong leg higher. >> okay. paul, got it. thank you. paul schatz, heritage capital. do you believe there's one last glorious leg higher here? >> that's been the sentiment amongst a lot of technical analysts where they're looking for a real spike higher because they don't feel like the spike higher has been enough velocity in magnitude, so they want that

last gasp. that's usually the way bull markets end. i do think we're going lower ultimately. i think we test that 1867 that you named, but i also think ultimately we trade down to below 1700 in the s&p cash. >> i would say the last gasp might have been the move off of the october lows last year. >> that was dramatic. that was glorious. >> it really was. and it was head scratching in a lot of ways. and when you think about the churning that we saw for most of this year until this decline and you looked at the internaled of the market, there was a lot of bad stuff going on despite the fact that the s&p was between 2050 and 2100. i don't really understand what he's saying, but i think that the bull market may be done and you may be below 1800 very soon again. >> coming up next, hulu is going at -- that could be bad news for netflix. the man who called the end of the the man who rectally called the end of the gold era rout is

back with an even bigger prediction on oil. he'll tell us what that is. and later, is china doing something that could totally destabilize the stock and bond market? we'll tell you what that is and how you can protect yourself later in the show. much more "fast money" right after this.

gopro kicking off our top trades tonight. the stock falling 5% tonight on the back of supplier ambarella's

earnings call last night where management called for weak demand for wearable chips this quarter. also raymond james cutting its price target on gopro to 50 from 71 but the firm is keeping its outperform rating on the stock. what is more troublesome about ambarella's guidance was for the third quarter it was down year on year but it was also down sequentially, dan. >> those were the two big issues and i would also say piper had a massive revenue cut in the fourth quarter. also here in this name. ambarella's been one but gopro's been the one that we've been really focused on. this is the one you think there's this massive secular shift or some people do and then the potential for this media valuation. i don't buy any of it to be very frank with you and i think a lot of the products they've been hyping, a lot of the products it took the stock up above 60 very recently are not going to be anything that we see in 2016 numbers. so to me you have a very expensive stock, soon to be very commoditized space. i'm not a fan. i think you probably see new lows in gopro very soon. >> it's going up in anticipation of numbers, not on the print of numbers. it's sell on the print. >> here's the thing. i actually like this stock.

i like the concept. i thought they were selling kind of a lifestyle brand that they were able to give you something nobody else could. but in this market environment this is exactly the stock that gets killed. >> wait, is this out of your drawer? >> take this out of your drawer and sell it. exactly. no, you take this out of your drawer. in this environment it's going to get killed because it's all based on hope. so it works in a bull market, it doesn't in a bear. >> next up here, big news in the streaming space, hulu is now offering ad-free subscription that's could mean trouble for netflix. cnbc's jewel qua boorstin has the details in l.a. julia. >> reporter: that's right, melissa. hulu announcing its new commercial-free subscription will cost $11.99 per month. $4 more than the current hulu plus option which includes a limited number of commercials. this follows hulu's announcement monday that it's shifting away from its focus on television to make a multiyear deal with epix to stream its films from lionsgate, mgm and paramount including big titles such as "hunger games" and "transformers." these moves put hulu into direct

competition with netflix as well as amazon, which just yesterday announced that prime members will be able to download movies and tv episodes to their mobile devices for offline viewing. this shows hulu's media giant owners, disney, fox, and cnbc's parent nbc universal are looking to hedge against cord cutting and the decline in tv ratings and ad dollars as viewers shift to the likes of netflix and other on-demand services. now, hulu has only about 10 million paying subscribers. this move to get rid of ads plus dru broader content, it's a play to grow that number. netflix and amazon's rival costs less per month than hulu but hulu has the advantage of in-season tv content. julia? >> netflix was a strange outlier in today's session. down by as much as 4% for most of the session and finished the day lower by a third of a percent but still down. >> and this was my what are you watching last night. and to me netflix is still a barometer for the risk in this

market. high, high multiple stocks where people have assumed that yes, it's a pioneer, the growth is insane. i get that. but there's a lot of competition. hulu's been around for a long time. we're talking about this as a competitive force. it's been a competitive force for a long time. and it will be. 230 times market. you bounced off 100 on netflix. if it breaks that you get short and you go again. >> this is a really important point about the environment we're in in terms of sentiment and sentiment changing regarding these names. citron research had a report out on netflix today citing competition. these are not new reasons. but it was a reason to sell today, right? >> it was. but i think netflix's true competition of the cable companies, the cords, not these ones that are streaming aside. they have 9 million. hulu has 9 million subs. netflix over 40 million subs. i think when it comes between hulu and netflix i would -- >> lying a cable company. sorry to cut you off, man. but that's my big problem. either it's a media company or it's a cable company but it's not both. >> but netflix i think still owns the dance. they're where they're -- >> you could still believe that.

but in this market environment you may not want to pay that multiple -- >> you definitely don't. >> even for a player -- >> we just talked about how bull markets and everybody's expecting these big blowoffs. take a look at netflix i since april. it's a double since april. that is a hockey stick type of chart. that's exactly when you start take profits -- >> i don't disagree that netflix is going to see more pain but i think ultimately they'll still be the winner. if the market goes down it takes ev with it. >> here's the thing, guys. huh talk about the company and what you do mel just said it. in-season tv. that's something netflix does not have. okay? they data dump their show "house of cards" or whatever in a weekend. >> why hulu for in season tv when i have a dvr and i can -- >> because we're talking about cutsing the cord. you look out a few years this is what it's going to look like a whole heck of a lot. the current netflix offering of not current hollywood movies and old crappy tv is not going to cut it and as soon as that guy is no longer interesting to us i just don't get netflix. so to me i'm with tim. i think all this competition, the landscape is changing.

i think netflix has benefited -- well, it's benefitted from this and i think they're more like a cable company than anything he is. >> coming up next the man who called the collapse in gold is back and this time he's got a bold call in crude oil. find out we are sees it going. you're watching cnbc, first in business worldwide. in the meantime here's what else is coming up on "fast." >> announcer: the sell-off has wiped out billions of dollars. >> that's a lot of money. >> announcer: but it's created some bargains. and we've got five dow stocks trading at their cheapest levels in years. we'll reveal what they are. plus stocks are teetering. china's crashing. and oil has collapsed. so what will save the markets? >> the force? >> that's right, luke. "star wars" to the rescue. because it's giving an unlikely boost to a number of stocks. and we'll tell you which ones when "fast" returns. and today hundreds of companies are putting me to work. i'm teaching watson to help your vet speak dog. you're a dog, right? i'm teaching watson to help you make healthy choices.

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welcome back to "fast money." back in april of 2013 when gold was trading near $1,600 an ounce our next guest made the call that it was heading into a rout. it has fallen about 30% since then and has failed to recapture anything close to that level. and now he's here with his bold call on oil. michael hague is the global head of commodities research at

societe general. great to have you with us. the question here is have we seen the bottom in crude? >> good question. i think before getting to that exactly i think we should reflect and think about what's happened to crude for the last couple of months. a very apropos saying for yogi berra. baseball is 90% mental and 50% physical. and oil is behaving just like that. we had july where we had downward pressure based on fundamentals. august was purely sentiment, we think. the last four days have been absolutely chaotic with oil being pushed around by news from gdp and comments from china's pmi, from opec hogwash kind of statements that didn't really mean anything. as we go forward here at these levels, we're not going into a very bullish season for oil. so the pressure is definitely going to be to the down side. so no, we haven't seen the lows from here. do we go as low as we saw much earlier this year? there's a distinct possibility of that. and there's down side risk that

we can get into that can talk about where we could go with those risks. >> when you say that in august we were trading -- the crude oil trade was driven by sentiment, how do you think we get out of that cycle? what breaks that? is it an opec meeting where opec comes in and i don't know, states production goals or production or something like that? >> i think there has to be some significant fundamental information about the oil market itself rather than the dollar. rather than gdp. obviously that has an impact on demand. but if we start to see some significant declines in u.s. production or, which we don't think would happen if the saudis did come out and say something material about what they think they should do going forward, i think that's what gets us out of the sentiment, that's what gets us oil not moving down with copper and not moving down with the rest of the commodity complex. it will do its own thing. and you might get to see days like you saw earlier today where you saw crude going in a different direction from ones from the equity markets. >> michael, it's brian kelly. i'm curious about your view on opec. they seemed to have having some

disagreements about whether or not they should have a forecast for oil at all. to me that seems like somewhat of a pretty easy thing to agree on. how are they going to agree on cuts? and is opec doomed? >> opec agreeing and having commentary within themselves. we've seen this a few times. even since november where you saw oil prices come off slightly, it's the non-gulfies that basically come out with a louder voice talking about how they need to talk to each other and how there needs to be an agreement and this, that and the other and then you see oil prices get elevated once again and they go quiet again. you're going to see conversations come back and forward from certain member states. at the end of the day it really doesn't matter what anybody says except for the saudis. whether or not they talk about price targets or what they need, that really is irrelevant from venezuela from angola, from nigeria even. it's really what the saudis think and what they want to do. >> okay. so michael, just the bottom line, we could retest our lows from earlier this year, 35 or

so, we'd probably end up at 50 or so but will we ever retest the highs we've seen in oil? has the market structurally had to the point where pricing will remain pressured? >> you've basically characterized it. we've had a structural recalibration of oil. i don't think we're in the foreseeable medium term to even longer term, and i mean five years out, i don't see a $100 world anymore. $50 doesn't work. 100's too high. 75 sounds right. >> all right. michael, great to speak with you. thank you for your time. michael haigh of societe general. what do you think of his forecast? >> i tell you what, i think production in the u.s. is coming down and i think it's not even so much that the ea restated and said we peaked in april but you're starting to hear from all the cfos where capex are sticking in. what do you do? and you have to trade this. and you're trading this stuff and you're dancing near the door but buy best of breed. anadarko, break of 72, that means you get back above that, then it's safe to buy. that's a key level for that stock. hess, marathon. these are the keys. don't stray too far from quality. >> and nobody says you've got to be in oil stocks at all. any of the oil stocks.

what would you do? i mean, would you choose to be in oil? >> i think the schlumberger headline last week or so really got a lot of people to start saying is the company that i am short in, is that going to be the next one to be taken out? so i think that's starting a lot of buying in the process. i think if you want to buy stocks maybe emps, eog, that's a good quality name for you. other than that i do think oil as a commodity goes lower. >> still ahead hunting for cheap stocks in the dow. it's a tough job but somebody's got to do it. we've got the list of five dow stocks that are trading at their cheapest levels in years. and later biotech company badsalta abandoning its potential takeover bid for aria. could that be a bad sign for bisbi o'tech? meg trirl joining us with the details ahead. a powerful new dell 2-in-1 laptop, and durable new stellar notebooks, so you're walking the halls with varsity level swagger.

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welcome back to "fast money." snapping a three-day losing streak ending the day higher 280 points. stocks rally into the close. names like apple microsoft and home depot help to lead it higher. both the s&p 500 and the nasdaq close out of correction territory. the nasdaq is the first of the big three indices to turn positive for the year. here's what else is coming up in the second half of "fast money." china might be doing something to steady its economy and it

could derail the u.s. market. a special "fast money" report coming up. plus we're just three months away from the premiere of the new "star wars" movie and a number of stocks already reaping the benefits. we'll tell you which stocks are using the force. that's later this hour. let's start off with the dow. with the recent sell skrof some stocks, dow stocks trading at their cheap jest valuation in years but it's not necessarily the names you might think. dom chu has the details back at headquarters. dom? >> investors and traders are looking for discounts in blue chip stocks, so they're looking at the dow and there are some deep discounts valuationwise to where these stocks have historically traded over the last five years. the team at cnbc pro took a look at these dow stocks for those deep discounts. goldman sachs currently trades around a 10% discount to its historical valuation. apple, a near 14%, 15% discount. travelers, caterpillar also trading at those deep discounts. the single dow stock that trades at the biggest discount to its five-year valuation, shares of united technologies, around a 20% discount on a price to earnings basis over the last

five year average. now, that's the discount side. the single dow component that's head and shoulders trading at a bigger premium valuation to just about everybody else, this one has a current p/e of 28. historically it trades at around 14 times earnings. almost double what its historical average is. those are shares of microsoft. microsoft again trading at some of the richer valuations in the dow. that's just part of the story. our investing team at cnbc pro has more on that online. subscribers can go to cnbc.com/pro. so check out those stocks and that story online. melissa, guys, back over to you. >> will do, dom. thanks. let's trade some of these names. microsoft, dan, was interesting because the five-year average, five years is a very interesting period for microsoft because it did get satya nadella in the meantime. >> i've been saying this for a while. i think there's been a premium built into microsoft for the last year since nadella took over. listen, there's a whole host of reasons to have a lot of optimism but remember what they're very tied to and that's pcs. so to me microsoft, i think it's been in this 40 to 50 range.

i think you probably buy it at 40, sell it at 50. and that's where it's been for over the last year. >> that's a big gainer in today's session of 3.7%. where would you go on this list? >> i want to say before that be careful because a lot of stocks are cheap and it means their earnings are going way down. in the energy sector where earnings are dropping faster than share prices, be careful. also the casinos. mpel. utx let me talk about these guys because i think that's the case where you have the most up side. china, the otis cuts, the eps revisions are large i. in the stock. granted china could get worse but the sikorsky proceeds, selling off assets, these guys are turning the ship after what was a sell-off that was even kind of prechina-led even though china was part of it. i like utx here. >> utx could have been thrown into that basket we talked about last night whether china's sell-off is over or not. when you start to see this one stabilize maybe the china story is over. but i would go apple. you have to fundamentally believe maybe iphones are going to surprise because everyone factored in the iphone where they get most of their profitability from is really

hitting a wall. maybe it's a surprise, it's not the watch. maybe it's apple tv which a lot of people are suspecting. maybe there's something to do there. or unless like dan feels if the story is fundamentally changed, then you've just got to sell apple and i don't think we're there yet. >> for me i go with volatility, and that's goldman sachs. they're going to be the ones that benefit from this volatility. guy has mentioned cme is one that you play. but on this list goldman sachs is the way to do it for the next couple months. >> here's one, cisco. i missed it last week. i think it traded below 24 on that big gap day. here is a dow stock that trades 10 1/2 times next year's expected earnings. 3.25% dividend yield. half that market cap is in cash here. they have new management -- >> it's a total -- >> it is. but look at the guidance, tim, they just gave and the dollar exposure that they have and -- >> they said edm was getting better. they felt good about. no one else is saying that. >> there's a dow stock that if you buy it on sale down there at the 52-week lows i think you -- >> the ceo's inaugural conference call gave upbeat guidance. he didn't have to do that.

bax alta abandoning its deal for ar yad pharmaceuticals. could that mean it's going to dry up in the biotech space? >> ariad the stock dropping 17% after bloomberg reporting that baxalta dropped its offer, they stop talks to buy ariad. disagreements on price and concerns expressed by baxalta shareholders. if you look over last week, ariad has given back all of the gains since last week when both bloomberg and we reported that baxalta approached aria. i learned the initial approach was i month ago and ariad did reject that. as for baxalta it of course is fending off a $30 billion bid from shire. and i'm actually told that shire itself if it doesn't get this deal done could itself be a target for bigger companies like allergan. so it's this continuation of pac man type deals in the pharma space. for ariad it's not inconceivable it could be a takeover target for baxalta or others.

it's got an approved cancer drug on the market forecast to do about $130 million this year in sales. it's got a lung cancer drug in late-stage trials in the pipeline. so both things that make it potentially attractive to acquirers. if you look there at the chart we have of baxalta and shire you can see shire's stock has lost 15% in the last month since it made its initial all-stock offer. that's fallen quite a bit. so you have to wonder whether shire's going to have to up its bid for baxalta in order to get that done, mel. as we're talking about pharma deals potentially drying up there are still so many potentially going on in the pipeline it's hard to see that happening anytime soon. >> valiant today just announce its deal to buy sinnar jettics. valiant has been on a shopping spree this year. >> trying to do that big deal to buy allergan, which is the previous iteration of allergan which was bought by activists and changed its name. the ones we've been seeing are these smaller tuck in bolt on acquisitions. it did a deal yesterday to buy a psoriasis drug from astrazeneca.

i talked with valeant ceo mike pearson today who said they're not afraid to go after the big deal they're still looking at those opportunistically and they would consider another big deal if it makes sense for shareholders. they're looking there. but valeant definitely not slowing down. pearson telling me that all the volatility we're seeing in the market right now makes him more opportunist i can about doing deals. >> meg, thank you. meg tirrell. valeant by the way is up 93% over the past 12 months. >> listen, if this market volatility continues, whatever the reason, these deals are done. you may see some of these big blockbuster ones but the little ones are done. the things that have powered the xbi so much higher over the last 18 months, it's done. >> why couldn't a big name like valeant or celgene or a biogen or gilead continue -- >> yeah. i think we have a structural thing going on in biotech and there are some very deep pockets chasing. i think the smaller deals are the ones that probably can still go. you look at valeant this is a name that although there's probably as a lot of these guys say, if we're anywhere near successful with our pipeline as

we think we're going to be our stock is cheap. and that's the way people trade them. except for the fact in this market. that's what dan is saying. i wouldn't go near this stuff. if you think netflix is going to 85, which i do, then valeant is going a lot lower. >> that's your market view. that's how you're expressing your market view. >> this is a real example of where people have profits. this is where they pull profits out because they're nervous about losing their whole year. so a lot of guys pull out their profits from here. if you look at the xbi or ibb they're only above their 200-day moving average. you need to be above your 100-day moving average to be able to get back into these names. >> at the same time for specific names, i mean, like the large cap ones they're in health care. if somebody tells me that they're playing defense and that they're buying the xlv, the xlv is about 20-plus percent biotech. you've got to be in some of the big cap names. i guess it depends on where you're going. >> yes. i guess it does depend. i think i'm more along dan's lines is that yes, there could be one-off deals here and there but in this type of environment it's going to be a lot harder to get these deals done.

so for me if i'm looking at xlv's probably your safer way i guess if you want to buy something. but xbi, sold to you. still ahead, the hidden china threat that could be about to hit the u.s. everything you need to know after the break. plus, can "star wars" save the stock market? hmm. we'll explain how the force is pushing some stocks higher. much more "fast money" straight ahead. we've got trouble in tummy town. peptocopter! ♪ when cold cuts give your belly thunder, pink relief is the first responder, so you can be a business boy wonder! ♪ fix stomach trouble fast with pepto.

much of the focus of volatility has fallen on china. reports say china could be selling some of its massive holdings of u.s. treasuries in a bid to support its currency. b.k. is going to walk us through the process. >> when it comes to currencies it can get a little confusing. i like to replace it something we know. let's pretend the rmb or yuan is apple stock and apple wants to support its price at $100. apple now has this $100 billion offshore that they're going to use to buy back every share of stock you that want to sell at 100 bucks. that's basically what china's been doing. now, the $100 billion that's offshore instead of sitting in a bank account china has gone out and bought treasuries with them and when they buy treasuries they get some kind of a yield. so now all of a sudden china devalues the stock. they come out and just like

apple would say instead of $100 we're now going to buy it at $98 and we'll buy everything. when they get a big rush of sellers they need dollars. they're going to trade their apple stock, $4. how do they get those dollars? they sell off their treasury holdings. they get those dollars, they give it to the sellers of either the currency or in this example the apple stock, but that's the way to think about it. think of it as a buyback, think of it as a pegged buyback at a certain price and the more sellers you get in that stock the more treasuries you have to sell off. >> okay. so that's how it works. the question is is china -- >> is china selling treasuries? >> selling treasuries. let's bring in our guest. >> let's talk about it. >> ceo and chief investment officer of standish mellon a firm with $160 billion under management. dave, great to have you with us. have we seen the impact? we've seen the impact of china buying treasuries. how much of an impact is embedded in the treasury price or the treasury yield and is china in fact selling treasuries

now? >> well, there's some evidence that china's been selling treasuries. they actually notify the u.s. when they're going to do so. there's been enormous amount of reserve accumulation over the last decade or so. there's a lot of reserve banks, not just china, that have accumulated u.s. treasuries. and recently given the volatility in the chinese stock market and concerns about the chinese economy there is this fear that they will begin selling treasuries in order to support their own economy. >> so do you believe that that's what's going on here? and if so i guess to connect the dots if we saw an impact on yield and it's embedded in treasury yields, are we going to see that impact come out of the market and how much impact could we see? >> we've estimated that the impact on treasury yields from not just chinese reserve accumulation but in total across a number of central banks may be as much as 100 or 150 basis

points. that means about 1% or 1 1/2% potentiality impact on treasury yield. so theoretically, if china and other central banks were to immediately sell all their holdings to treasuries, you could see a dramatic impact on yields. but we don't believe that that is going to be the primary driver of yields in the short term. we think there has been some selling but it's rather modest in relation to the overall size of the market. you have to remember that china holds about 1.3 trillion of u.s. treasuries and that's about -- out of about 13 trillion outstanding. but japan is also a large holder. and of course the u.s. treasury holds about 20% of the outstanding marketable securities. so chinese selling is one fac r factor. in our opinion there hasn't been any evidence in the short term that it's affected yields on treasuries. >> dave, we're going to leave it there. thanks so much for your analysis. david leduc coming to us from

boston. the question's still on the table in terms of the impact. what's interesting is china mostly holds short-term maturities, not the longer part of the -- >> a lot of my friends trade in these markets. and i'm hearing it's seven to ten years is where you see more china selling. but if you think that china's a major seller, about to dump their treasuries, that's self-fulfilled destruction and there's no way they're going to do p p i best if you ask dave he's more concerned just about liquidity in the treasury market. that's the bigger problem right now. and that's something that weighs on the fed. >> let's look at the bearish view for treasuries. you use a word like dumping. and tim's right, they're not going to go out and absolutely crush the market unless they have to to surnt the price like i described. but more importantly, the top buyers of treasuries are now gone. you have the u.s. federal reserve, which was a buyer. china's no longer a buyer. japan's no longer a buyer. saudi arabia's no longer a buyer. russia's no longer a buyer. who's left to buy? you have u.s. insurance companies. the question is will they fill the void? >> but hold on. when you think about it, when u.s. equities were at their lows

last week, where was the yield on the ten-year? 2%. when we were on the lows earlier in the year in january, the yield on the ten-year was at 1.7%. so if we're going to go into a rocky period for global equity markets, i think you're going to see u.s. treasuries bid again. >> because treasury bonds and stocks are going down together. you have multiple macro rebounds -- >> but guess what? >> they don't offer the type of -- >> if things are as bad as you saw they are, b.k., foreign private buyers, not central banks are going to be bigger bidders of that paper than banks. that's the support valve. >> if what you say is going to happen we're in for bigger problems from the risk parity funds when those things go down together. >> that's one part of the bearish trade. you also -- not only this. just in september you have a massive amount of supply in terms of corporate bonds coming on the market. dealers are going to have to hedge that. they're going to hedge it. my only point, i'm not saying that everybody's dumping. but you're removing all the

pillars that have built this 30-year market in bonds. >> if we do see a hard landing in the world's second largest economy there are still ways to make money and protect your portfolio. let's go around the horn. grasso, where would you turn? >> utilities. obviously, they haven't really performed that stellar as of recent but if you look at southern a name i talk about often on the show it's over a 5% yield. if china collapses the fed is definitely going to either do a one and done or do none so you don't get a yield competition anywhere else. it's the only place you can make some money. capital where you have capital appreciation, most likely not but at least that yield might get you through some tough times more so than the overall market. >> tim. >> if china falls apart the market falls apart. short the aussie dollar, long the u.s. dollar. if i want to play stocks facebook is growing. it's not because of china. it is a global company but it's not because of china. and ultimately i think buy cigarettes. altria, m.o. these guys are big plays and these are the ones people get nervous they're going to smoke a lot. >> the sin trade.

defensive. >> well, listen, i'm more in line with these guys. if china falls apart as we're saying, if they have some kind of depressionary event you might as well buy canned goods as well as cigarettes because we're going to be living in a bunker. in the meantime between bunker living and you buy treasuries because china is going to support their currency. make your money with treasuries and buy all kinds of campbell's soup. >> spy puts. this is what you do if you want to protect your portfolio. you don't go out and buy them when vol is still very high but if we ged get a period where volatility has settled a bit and spy puts look relatively attractive that's one way to protect your profiler. >> still ahead, may the force be with stocks? the new "star wars" movie is three months away but it's already helping boost the market. we'll explain why right after the break. plus traders are betting one airline stock is about to fall 20%. the big reveal's next. you're watching cnbc, first in business worldwide. more "fast money" straight ahead. big day? ah, the usual. moved some new cars.

hauled a bunch of steel. kept the supermarket shelves stocked. made sure everyone got their latest gadgets. what's up for the next shift? ah, nothing much. just keeping the lights on. (laugh) nice. doing the big things that move an economy. see you tomorrow, mac. see you tomorrow, sam. just another day at norfolk southern.

♪ china may be weakening and u.s. markets may be in turmoil but there is one thing that could provide a new hope for investors.

that's right, "star wars." the latest film in the blockbuster franchise hits theaters in december and is already having a ripple effect across a galaxy of industries. disney has announced plans to open "star wars" theme parks and today piper jaffray said target and hasbro both stand to gain from "star wars" toys which hit shelves in just two days on what is being called force friday. so is "star wars" the one thing that can save stocks? we haven't even talked about disney and the potential run-up we could have off of these -- you know, the recent pullback in anticipation of the release. >> i think disney's a good example of a stock that actually, regardless of this expected outcome of december 18th being a blockbuster in this new "star wars" and plenty of spinoffs that sometimes some of this news is in the stock, especially when we're look out six months, especially when you consider the climb that it had. hasbro's a different story here. it's just pulled back here. we really don't know what the merchandisi merchandising's going to look like. it's going to be big and i would expect at some point hasbro trades at a new high into this new film. >> the implication that dan was making was that disney shares, the most recent high was pricing

in all of the "star wars" hype. do you agree? >> i think it got a lot of it. but what we've also seen is all the studio and consumer product spinoffs out of the studio have always overexceeded the expectations and that these are gifts that keep on giving. so "star wars" is a gift that will absolutely keep on giving to these guys. but if i'm playing the retail side of it play walmart. i mean, play again relative value. to me something that hasn't rallied. if target's going to get a pop walter's going to get a pop. as far as i'm concerned it's the same trade. >> this whole notion of disney's recent highs pricing in the "star wars" hype it intreegds me because the recent high is 122. that's 22% above where it's trading now. even if we are to believe that that was the top in terms of the pricing in the hype, if we are to assume it returns close to that level that's a -- >> huge return. i don't think it's priced in. it's worried about people -- it's worried about the skinny bundle at this point. i don't think it's pricing in. but i'll tell you one real quick under the radar. imax is going to be showing them for a month. not dissimilar to what they did with the hobbit.

the hobbit was great box office returns. >> i love the hobbit. >> that's b.k.'s favorite movie. shares of delta soaring more than 5% but some traders betting the stock could run into some turbulence in the next couple months. dan's at the smartboard. >> the stock was up on some good data today and obviously oil was down in the morning that was helping things and call volume ran 2 1/2 times that of put volume on the day but the largest trade was a block of puts. when the stock was about 45 there was an opening buyer of 2700 of the march 39 puts paying 2.40 for those. that breaks even at 36.60 on march expiration. and i just want to take you over to the chart here. this $40 line where it kind of bounced out and broke out of here and bounced off here is some big support. choice of the 39 put is kind of interesting. it could be protection against long stock. and when you think about it, this is implied volatility. the price of options for delta. we just had this little spike. but look at this spike. that was the ebola scare last fall. so this trader may be thinking

about -- in a market where option prices have been elevated, this prices of options in delta may be kind of cheap. this could be relatively cheap protection if you own delta. >> thanks for that, dan. for more "options action" check out the full show, 5:30 p.m. eastern time on friday. plus coming up next the traders tell you what they're watching tomorrow. right after the break. stay tuned. 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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♪ last but not least worried about the stock market? maybe you should take a page from twiggy. check out this video from gopro, the water-skiing squirrel showing her skills while doing some laps in a small pool. the furry champ took home the title of most valuable pet in this year's x games in austin. >> enough said about gopro. >> jump the shark. >> that's why gopro's a bull market stock. >> tame for the tienl trade. tim. >> i think you need to watch emerging markets. the brl hit all-time lows. brazilian real. watch that tomorrow. >> grasso. >> with china out of the way markets can move higher. >> beakers. >> tomorrow morning an ecb me meeting which we haven't talked about a lot but you watch the euro. if the euro get weaker the dollar gets stronger which in the short term could be a catalyst for stocks. >> dan. >> crude oil 40, 50.

break above 50 okay to get back in the pool for u.s. stocks. below 40 lights out baby. >> i'm meltsa lee thanks for watching see you back here tomorrow at 5:00 for more "fast money" meantime don't go anywhere "mad money" with jim cramer starts right 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 and 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'm just trying to save you money. my job is not just to entertain but educate and teach you. call me at 1-800-743-cnbc or tweet me @jimcramer. after today's positive session where the bulls seemed to at last find their footing, the dow gaining,