CNBC's Jim Cramer on Thursday shared common mistakes investors make during big market moves, especially during a rally.
On Thursday, the Dow Jones Industrial Average edged higher, closing up more than 52 points. The index had significantly trimmed an earlier rally of more than 450 points. Disney's nearly 5% post-earnings jump, as well as weaker-than-anticipated inflation numbers, helped lift the 30-stock blue chip index.
Cramer advised investors not to base any major decisions on a single data point, especially one that came in close to estimates. If investors do decide to buy, Cramer recommended making limit orders instead of market orders.
"Market orders put you at the mercy of an unmerciful market," he said, suggesting investors stick with limit orders to guard against radically overpaying for stocks.
Cramer also explained why he thinks Disney was a "textbook winner" on Thursday. Stocks that are able to go higher amid a wave of selling are usually ones of value, he said. Cramer thinks Disney was able to buck the trend in part due to CEO Bob Iger's confidence despite its mixed earnings report.
"When almost all the other stocks were in retreat from their highs, Disney's stock slowly, step by step, inch by inch started its advance," Cramer said. "Whenever you see that kind of action, you know that something special is happening, because this is a stock that's able to defy the gravitational pull of the average after being cut in half over the last couple of years."
Cramer finished by telling investors that market moves inspired by new data points can be fleeting and don't always change the prevailing trend of the market. To Cramer, the current market trend is selling off big-cap tech stocks.
"But bottom line? I can tell you that when you see the techs rally as part of a group move like we had at the opening, that's going to produce a rout later in the day when the market changes direction," he said. "And then you use that rout to spot brand-new spanking winners."
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Disclaimer The CNBC Investing Club Charitable Trust holds shares of Disney.
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