uh, no thanks. i have x1 from xfinity so... don't fall for directv. xfinity lets you download your shows from anywhere. i used to like that song. was that a wild week or what? the gang is here at the nasdaq market site. they're going to try to make some sense of it. while they're getting ready, here's what's coming up. ♪ >> that sums up tech this week. but it's two names in particular that could really scare investors next week. plus -- ♪ freak out >> that's what traders think some stocks will do. which is poised to surge. and something remarkable is going to happen to the bull market next week. we'll tell you what that is and how you can profit. the action starts right now. ♪ you can dance

with government announcing a tanking on earnings, the reports from apple and facebook be the next shoes to drop for tech? let's get in the money right now. >> when you think of technology, it came to the end of the week where we saw $50 billion shaved off between google and microsoft today. for the most part, they were hanging in there. there were a lot of disappointments. ibm, intel. and these two guys. and to me, if you look to next week, tuesday and wednesday. we have $1 trillion or close to it between apple and facebook reporting again. apple, i don't think expectations are particularly high. i don't think the stock is going to move a heck of a lot one way or another, unless there is a meaningful downgrade. facebook, that stock rallied in january when they beat on the floor. and that's one that people want to keep in there. in the game here. >> apple is getting into the

drifting around aimless levels that we've seen historically. one of the things that keeps it from the bottom falling out. you have ten-times earnings. you have a situation like that. there's not much that can happen to it at this point. a small pullback. facebook, if something bad came out of that, you could see a sharp move. >> that's at the prior peak. you're looking at the trade. we know it was a friday. >> which has failed. >> the qqq. they've gotten back to difficult levels and have backed away. the issue here, and we were playing one of these last week, microsoft. but these are bad moves. this is not like gentle sell-offs. definitive volumes. double and triple with gaps. not good action. >> it seems like the market is treating the stories. higher on the day. you probably would have thought

it would have done when all of the names reported. >> that's right. microsoft was its own story. two, big players. amazon and microsoft. this was supposed to be a growth area. and the growth rate just was quite disappointing. and the earnings call had a negative tenor to it. you put those two things together, and people had bought into it on the expectations that this thing in particular was going to be good. it wasn't. it had to sell off as a result. >> carter mentioned the xlk. it's an actively traded thing. it's concentrated. the top ten holdings make up about 65%. six of the holdings have reported. all six have missed expectations. we had ibm, intel. there was visa in there and verizon, which had a sharp move. that's interesting to me.

one reason i've stayed away from trading the xlk because at&t and verizon are thought to be 0 somewhat defensive, fat yields and that type of thing. now, i think the timing is really interesting to look at the xlk. next week, we have two stocks that make up 25% of the weight of this thing. if they disappoint expectations and trade lower -- they don't have to trade as badly as microsoft and google did. the trend is probably broken. xlk in particular, we have a one-year chart here. couldn't break out at the prior highs. apple tuesday night, don't do this monday morning. i want to see lift on monday or tuesday. and the timing is important. before apple, if you think it can retrade a bit of the move, that's about $42 here. i want to look out to september expiration. i want to do this before apple's

earnings on a bounce today. when the stock or the etf was 43 1/2, you can look out at september and buy the september 48, 38 put spread and you get paid $1 for that. one of the september 43 puts for $1.75. the 43 point spread and sell at 75 cents. it costs you a dollar. you make up the $3 between -- 2.5% from here. and you make three. down 8%. that's retracing a lot of the move here. i like the risk/reward. timing is important. i think you wait for a little bit of a bounce next week. >> some would argue, the top components that all the bad news is there. a lot of these stocks that will report next week, a lot is already priced in. >> i think that if they disappoint or it's not good enough they get them higher, i think the trend is broken and you see a retrace of it.

>> i don't know if you need to wait for a bounce to put the trade on. the only thing that would cause the bounce is for the two weakest performers to help drag the xlk down. would need to recover. and i don't know why they would on monday. if you are concerned about the two big names that will report next week, putting it on at the current level might make some sense. >> what does this say about the market? the market is going to ricochet on stocks that are industrial and materials-based. america is not going forward on the back of car steel. starbucks, nike, and visa, and amazon, and google and netflix. they are going higher this week. these are all struggling. >> not all about facebook and apple. it's also a big week for bio tech earnings. we go to the newsroom and what you can expect. hey, sima.

>> it's been a rollercoaster ride. look at thursday. the make-or-break day. we'll have the three largest components of the ibb. and the options market is expecting a less-than-average move for all of the stocks. amgen reports after the close. the implied move is 3% versus 3.5%. then celgene. that's expected to move higher or lower. and gilead sciences. the stock expected to move 4% in either direction. the move is just higher than that. this could represent a shift. >> and carter thinks that biotech could be setting up for a major breakout. what are you looking for? >> catch up with the s&p 500. this is a laggard group.

recently, they're outperforming. let's take it back to the lows of 2011, when we had the u.s. debt downgrade. one of the biggest winners of all-time. what we have is the following. the place we stopped and started to bounce is not random. if you take the sell off from 401 to 240, it's down 160 bucks. it's halfway back from 317. you can look at it as a 50% retracement. and we've come to life vigorously off of the lows. here's the spread that exists. there's the bounce. and here, still, the opportunity as the s&p has been going like that, more performance out of

the biotech. we think this will continue to converge. we play ibb on the long side outright or paired against the s&p. how can you draw the lines? you can draw them this way, if you're negative, which it's a head and shoulders top. which is exactly right. guess what. that played out. we broke perfect head and shoulders stop. now, this ricochet hasn't quite run its course. at least it gets back to the downtrend line, back to about here that gives us more convergence here. we like this long and we want to be there. >> how are you trading this? >> this is a spot where a lot of bad news got baked in. everything related, pricing wise. but the top four of this index are cheap stocks. these companies look like decent opportunities for me here. i think the simple way to make

this play. you can look out to june and by the 300, 320 call spread. that costs around 5 bucks. 1.5% to take a bullish bet. it will capture what's going on next week. obviously what will be going on over the next couple of months. there was so much bad news baked into the news it looks like to the upside. >> once ibb goes back up to that downward trend line, 5% or 6%, what happens at that point? >> let's pretend. >> pretend the charts work out. when you return to a difficult level, you find difficulty. that's not so much to manage off the lows, they're interested sellers. very much a trade at that point. not so much upsize.

whether they can still on a relative basis outperform the s&p. >> would you have the trade on? >> i give a lot of credit. it came on "fast money" a couple of weeks ago, when the etf was lower. and he said this is going to turn. what he is targeting here, and what mike is targeting, is the move back to the down trend. that's how i would play it. i wouldn't try to get all geeked up and think it's going the bust through there. it's a bad trend. and the ibb is down 30%. it outperformed the s&p. i like your call spread. >> you could see that in caterpillar. that was a long-term downtrend. a big sharp bounce off the bottom. going into earnings if you decide to play it for a bullish play. you got your head taken off. you want to do it be a risk-limiting way. that's why we use the call spread. >> got a question, send us a tweet.

and for everything options action, check out our website. while you're there, sign up for our cool newsletter. it's like the "vanity fair" of options. here's what's coming up next. ♪ everybody is kung fu fighting ♪ >> that sums up what happened to microsoft. why some traders see a rebound coming. plus, stocks have gone up forever. >> forever ever, forever ever. >> forever. and next week marks a major milestone for the bull market. we'll tell you what it is when "options action" returns. i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.

♪ no, you're not ♪ yogonna watch it! ♪tch it! ♪ ♪ we can't let you download on the goooooo! ♪ ♪ you'll just have to miss it! ♪ yeah, you'll just have to miss it! ♪ ♪ we can't let you download... uh, no thanks. i have x1 from xfinity so... don't fall for directv. xfinity lets you download your shows from anywhere. i used to like that song. herthey work hard.ade, wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade. welcome back to "options action." let's get to seema mody in the newsroom. >> bill ackman pushing square, pushing back its condition in canadian pacific it 6.4%, selling 4.1 million shares, roughly $608 million worth of stock. this comes after ackman's fund divested its stake nationally a couple weeks ago, as it deals with the loss of valeant pharmaceuticals. >> for the past 12 months, it's down 24%. mike, how would you interpret this? >> well, look, he's probably contending with some liquidity considerations. i don't know this is necessarily

a situation where he's really evaluating what he's holding. you have some liquidity there, and you can obviously source it. i think that's basically what he's doing. i wouldn't read a whole lot into their actions at this point. >> okay. wall street will be celebrating next week as it celebrates a milestone in the bull market. carter? >> by conventional measures, not our view, more than half of stocks down more than 30% at the lows in january. if we were to go with conventional views, this is -- we look at duration magnitude. in terms of duration, the current bull market is now the second longest effectively. and each of these has a time period where those who remember what they were, this is big. this is the post-war era, right? before we got into any trouble. this was '74 to '80 before inflation started hurting

things. this, of course, is '87 to 2000. along the way, you have periods where you're down more than 20%. but they don't really amount to bear markets. here is magnitude. and this is also important in the sense that you can say, wait a minute, from 1987 to 2000, there were two periods where it was down more than 20%, which is true. in 1990, and in 1998. but those aren't bear markets, they are resets. they go straight down and back up. a bear market like we've seen in the last 2 1/2 years, where stocks drop 30% or more. these are milestones a lot of people are looking at. this also makes the top five. what we do know is that market's not cheap. you can look at it a thousand different ways. if you price the sales, price the book, cash flow, but if you were to look at just a straight up pe multiple, based on as reported earnings, non of the

nonrecurring and store day items excluded. we're trading at basically a 24 multiple. now, remember, you're most expensive at a low because the denominator is eviscerated. you'll have pes that read excessively at the '09 low. but this is at or near the top of where it can go. >> all right. what do you think, mike? how much longer do we have as we celebrate this anniversary? >> it's true, earnings were eviscerated. one of the things we ought to be thinking about is, what do we think the next ten years for the s&p is going to be for average earnings. the other thing is, what are your alternatives. we don't invest in a vacuum. we have to say, okay, i've got a risk-free ten-year rate at about one spot 89. those choices aren't that great. if you take a look at the earnings yield of the s&p over the risk-free rate and go back a period of 50, 60 years, you actually find right now that spread looks relatively favorable. i think that is part of the bull case people have for equity right now.

>> my gripe about that is the last two tops, if you look back at the year 2000 and back at 2007, 2008, where the s&p actually dropped 50% from those peaks, the fed funds rate was at 5%. and when you think about that, and you think about where we are, and think about the fed's inability to raise rates at this stage of the game and think about how much higher we are in terms of, you know, the s&p 500, to me, they've forced us to make really bad decisions. when you think about that. i know the ten-year treasury yield doesn't sound attractive, but at some point cash under your pillow or hard assets is going to look good. what's going on is -- >> it's going to look attractive when rates really start to rise. i think you're going to continue to see that correlation right there. basically i don't see why equity should sell off hard until we see the rates go up. that's the primary propellent for equities right now. >> equities did sell off really

hard. if you were to look at the lows, despite this happy ricochet over the last nine weeks, at the lows in january and february, 50% of all stocks in the russell 3,000, 98% of the investable capital in the united states, not just the s&p, 50% of the stocks were down more than 30%. if you want to check off the 20%, it meets that criteria. we've been damaged for a long time. the ricochet doesn't help things, because -- let's take u.s. steel, 6 to 20. the cap right now is $3.8 billion. johnson & johnson, if it goes up or down 1%, you're out of business, go home. it doesn't matter. the big stocks are starting to struggle. starbucks, nike, this is the problem. coming up next, it was a bloodbath this week for microsoft earnings. if you lost money, our traders have a way to make it back. more "options action" right after this.

i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.

herthey work hard.ade, wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade. welcome back to "options action." time for a little call. we look back at trades not going in our favor. just last week, cohen carter said microsoft was about to hit a new high. take a listen.

>> big beat. we're going to make the bet that it will do this again. and get back to the all-time high. >> i think the way to do this is to look at the june 57.5, 60 call spread. pay a buck for the 57.5. sell the 60s for 35 cents. >> as you all know by now, microsoft fell more than 7% today. >> if you make a trade and you have a premise, the premise is we're going to break out, and it's going to be earnings related. a gap up the last time. gap up the prior time. got the exact opposite outcome. a gap down. if the reason is gone, the trade is gone. it's over. walk away. it didn't do what it was supposed to do. >> as far as the options trade is concerned, you can't walk away. it walked away from you. it doesn't have any value left. you're basically stuck with a worthless call. the good news is, we only spent a little over 1% of the stock price, and that's the reason you do this in the first place.

there we are. >> you're out. okay. dan's turn. also last week you said qualcomm would be the next chip stock to tank. take a listen. >> i think the stock sets up for a good short opportunity here. when it was trading at $51.60 today, you could look out to may expiration. by the may 52 half, made 45. put spread. >> now, qualcomm has actually rallied 3% this week. dan, what are you doing? >> it reacted positively to the negative news. they have apple here. they talked about they're going to lose some of the apple business in the iphone 7. i think you take it off. it's acting good. you take the loss and move on. we've got your tweets and the final call. i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade. don'don't go to la. don't go to tokyo. live there. hey, welcome! come in, come in. when you airbnb, you have your own home. make your bed. cook. you know, the stuff you normally do. ♪ wherever you go... ♪ don't go there. ♪ live there. ♪ even if it's just for a night. ♪

herthey work hard.ade, wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade.

let's get to a tweet. yahoo! has seen some serious call buying in the week. time to get long. yahoo! reports are crossing that. yahoo! is finalizing bids next week. so mike, what would you do? >> i would buy call spreads rather than the outrights. we saw a lot of activity in july. price options is relatively elevated. call spreads will be a smarter way to make the bull bets in this one. >> how is baba looking? >> i don't know what they're expecting for the quarter, but i would be on the long side. >> on the long side, all right. time for the "final call." >> playing the relative strength in this etf. >> five bucks to the call spread in ibb. that's the way to make the bullish bet there. >> dan nathan? >> the xlk, i wanted to be specific about this. i would like to see a little bit of a move higher before i put the trade on prior to apple's earnings.

i don't like the idea of pressing these shorts. you can have them outperform next week. it's a longer dated trade. looks like our time has expired. i'm melissa lee. options action, cnbc.com. don't go anywhere. "mad money" with jim cramer starts right now. >> announcer: the following is a paid advertisement for the shark rotator powered lift-away from sharkninja. looking for a better vacuum? talk to someone who owns a shark. they'll tell you the rotator has more suction than the newest $700 dyson cinetic vacuum. >> my shark makes my home cleaner and my job easier. >> announcer: and now the shark goes from upright to powered lift-away to bring superior suction and a powered brush roll where other uprights can't go. >> there's no place dirt can hide from my shark rotator. >> announcer: the powered lift-away is the total transformation of the upright vacuum. it's no wonder americans now choose shark 2 to 1 over dyson. a year ago, sh