THE AFTER HOURS TRADING CIRCUS

Illustration of circus marquee

The normal trading day on Wall Street goes from 9:30 AM to 4:00 PM. There is , however, extended hours trading, which includes pre market and after hours trading. Pre-market is 6:00 AM to 9:28 AM EST and the after hours session goes from 4:02 PM to 8:00 PM depending on the brokerage.

The extended hours trades can only be placed as limit order. You have to specify a price as which you are willing to buy or sell. You can not employ a market order, which simply says buy or sell the stock at the best available price.

Watching stocks trade after hours has provided many hours of entertainment for me over the years. The most volatile time is when a controversial stock reports earnings after the closing bell. Yesterday, I had the opportunity to watch the after hours trading of Chipotle (CMG:NYSE). Chipotle  has been squarely in the public eye ever since 60 customers in 14 states became ill after eating at Chipotle restaurants about 16 months ago.

Chipotle reported earning after the closing bell last night.  This means that they released their latest quarterly earnings report which includes all of the financial results for the company. The earnings reports are typically followed by a conference call with CEO, CFO or some other top management position.

Chipotle has given poor earnings reports for the past few quarters but has remained a popular, almost cult stock. The prevailing sentiment going into yesterday earnings release was cautious optimism.

The company reported better than expected earnings.  Here is what happened after hours:

cmg after hours 2

So, the stock closed up a few points on the day at 471.76.

Earnings were released at about 4:15, which sent the stock up by about 30 points by 4:44.

Then the CEO disclosed on the conference call that there was a data breach in the payment system sometime over the last six weeks. That took all the wind out of the stocks sails and it went DOWN 40 points to 467.55 at 5:09.

Now, back when the company had the E. coli outbreak, they poured gasoline on their own fire with the way they handled the public relations. This time, with the data breach, they were forthcoming and explained the situation. The stock recovered by 5:29 and stayed around the 487 range until the after hours session ended.

Today, the stock opened at 474.65, less that three points from the prior days close. At 12:30 PM today, the stock was trading at 480.

Here’s the lesson. The stock traded in a forty point range after hours. Someone most likely made a fortune running the stock up and then shorting it all the way back down.

Question: some big institutional trader probably bought the stock at 467.55 and sold it twenty minutes later at 487.50 last night. Who do you think they sold it to? Maybe it was another institutional trader or maybe, just maybe, it was some Average Joe or a bunch of Average Joe’s that didn’t understand the dynamic nature of the after hours markets.

9:30 to 4:00 is just fine for me. Beware the sharks in the waters!

 

DISCLOSURE: This article was written for informational purposes only. It is not intended as investment advice and should not be relied upon as such. Consult with a qualified financial advisor or tax professional to determine the proper investment plan for you and your circumstances.