EXCLUSIVE: Perfectly Executed Berkshire Hathaway Trade Shows Why Premarket Session Calls For Caution

At 4:40 a.m. ET Monday morning, Berkshire Hathaway Inc Class B (NYSE: BRK-B) was trading at $440, up nearly 5% on the company's earnings report. By Monday afternoon, the stock traded down to $410 a share.

'I've Never Seen That Happen': Dennis Dick, the cohost of Benzinga’s "PreMarket Prep" show and trader for more than 20 years, used Berkshire’s price action during Monday's show to explain why traders should be cautious in premarket trading.

Dick said that he traded the 4 a.m. premarket open for about 10 years, and learned how to find short opportunities in stocks that pop before the market opens. 

“I’ve never in my 25-year professional trading career seen Berkshire Hathaway trade up 6% and the S&Ps are trading down,” Dick said on Monday’s "PreMarket Prep." “I’ve never seen that happen.”

Berkshire Hathaway is typically correlated with the S&P 500. Once Berkshire’s stock had already dropped from $440 to $435, showing that there may have been some buyer exhaustion, Dick shorted the stock.

Once Berkshire went to around $417, Dick covered the short because the stock being up 1% felt more reasonable, he said. 

Read Also: Berkshire Hathaway Report, Shareholder Letter Released: What's Going On With The Stock?

“Lesson to be learned here: the holdings didn’t go up 6% overnight,” Dick said.

“It’s reasonable to be up 1% — they have lots of cash. I still wouldn’t buy it up $7. I definitely wouldn’t buy it up $17.” 

Some traders will look for premarket gainers at 4 a.m. and try and pile into the names with momentum. This is not a very wise way to invest, Dick said. 

“If you’re coming in at 4 a.m. and you’re buying stocks just because you’re like, 'this is the story of the day, I got to get in there,' you’re doing it backward folks,” Dick said. “The 4 a.m. trade is the fade trade.” 

Watch the full breakdown of the trade here:

:

Photo via Shutterstock.