Jim Cramer says that smart investors should completely avoid the "crazy" after-hours stock market -- Rule No. 5 of his "5 Rules for Today's Stock Market."
"I can't resist -- I have to talk about the lunacy of after-hours trading," Cramer said in unveiling his rules during a video-conference call with members of his Action Alerts PLUS club for investors.
Cramer said the wild after-hours trading that Palo Alto Networks (PANW) saw after releasing earnings on Sept. 4 perfectly illustrates why you shouldn't trade in the after-hours market.
When PANW released results after the bell, its earnings statement included what seemed like weak guidance for the coming quarter and the year as a whole -- initially sending the stock down from $200 to $180 in after-hours action.
Cramer, whose charitable trust owns PANW and who'd recommended the stock to Action Alerts PLUS members, called that "an incredible plunge -- especially because there wasn't any reason given. So, we had to believe that something had gone very wrong."
"I felt sick to my stomach waiting to hear what [CEO] Nikesh Arora would say that could explain the plunge," he said. "I felt like a total idiot ... and I was kicking myself again, especially because we had recently bought some stock back in the $190s," he said.
But Cramer said that as Arora spoke at PANW's post-earnings conference call, the stock recouped its losses in the after-hours market and actually started making some gains.
"As Nikesh went on in what as a very long call, things got better and better and better again," he said. "By the time the call was over, Palo Alto's stock had traveled from $180 back to $200 and then to $217."
"It was all crazy," Cramer said. "If you didn't know any better, you would have seen the stock up and just figured: "'Hey, Glad I owned some.'"
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