Trading After-Hours Can Be A Dangerous Game

The normal trading hours for the New York Stock Exchange and the Nasdaq are 9:30 a.m. EST to 4:00 p.m. EST. However, stocks continue to move outside of those normal hours in both pre-market and post-market trading sessions. However, traders should be extra careful about those low-volume extended hours moves.

The pre-market session takes place from 4:00 a.m. EST to 9:30 a.m. EST, and the post-market trading session lasts from 4:00 p.m. EST to 8:00 p.m. EST.

News Never Stops

Extended-hours traders know that just because the market isn't open doesn't mean the market-moving news stops flowing. Companies tend to make big news announcements, such as releasing quarterly earnings releases, before or after the normal trading session is closed. In addition, analysts make comments on morning or evening TV shows, such as CNBC’s “Fast Money” and “Mad Money,” that can move stocks.

Intel's Breakout

At around 5:30 p.m. on Monday, Cornerstone Macro technical analyst Carter Worth joined CNBC to discuss the technical picture for semiconductor stocks. In particular, Worth highlighted the apparent technical breakout in Intel Corporation INTC seen below in blue.

After closing the regular session at $37.00, Intel stock rallied 1.7 percent in the after-hours session, presumably on Worth’s comments.

Stocks often demonstrate much more volatility in the pre- and post-market sessions due to the relative lack of liquidity in the market. In the 20-minute time bracket in which Intel made its after-hours high on Monday, the stock registered volume of just about 20,000 shares. That amount of volume is minuscule compared to Intel’s 20-day average of around 18.5 million.

It's All About Volume

On Tuesday’s Benzinga PreMarket Prep, co-host Dennis Dick discussed the impact that after-hours chatter can have on stocks and why traders should be careful with such low-volume moves.

“A lot of times when people get real excited after hours…that’s the definition of chasing,” Dick said. “Intel’s a big old stodgy stock. It sometimes moved 50 cents on a good day. When it’s up 64 cents after hours because somebody liked a chart, it seems overdone to me.”

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Dick shorted Intel up to around $37.50 in the after-hours session on Monday, and his trade paid off the next morning when Intel stock dipped back down below $37.10 within the first 30 minutes of the opening bell.

Stocks can make huge moves in the extended hours, but if those moves come on tiny volume, they may have little or no bearing on where the stock will trade once the regular trading session begins.

Joel Elconin contributed to this story.

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Listen to the full PreMarket Prep episode below:

PreMarket Prep is a daily morning show about short term trading ideas and technical setups. It airs live from 8–9 a.m. ET here, and the podcast is here