On Friday morning last week, I awoke to the following dramatic headline about a flash crash …
It was a good reminder of how important it is to tune-out the day to day noise of the markets … and why we focus on end-of-day closing prices and keeping our stops out of the markets.
Here’s what the chart of the British pound looks like for the past few days …
You can see that the current VQ on the pound is only 6.8%. That means that it’s reasonable to expect the pound to move around, up or down, in a range of about 7% over the course of a year or more. Instead, investors saw a 6% correction in the pound in a matter of minutes.
Of course everyone remembers the famous flash crash of May 6, 2010 that saw nearly one trillion dollars of market capitalization disappear and reappear in the span of just thirty minutes.
Such “unexplained” events happen in the markets far too often these days … and it’s not just in the broad market indices and currencies. It happens in individual stocks as well.
Axcelis Technologies (NASDAQ: ACLS) is involved in the semiconductor manufacturing business. It’s a stock that’s been on my radar for a while because it has such a great looking SSI trend dating back several years now.
On February 8th of this year, ACLS opened at $9.64 before suddenly dropping 26% … to a low of $7.16 … and then recovering to close at $9.36. You can see the spike lower in the chart below.
TradeStops uses end-of-day closing prices to evaluate stop losses and other alerts. You can clearly see in the chart above that ACLS dipped below its SSI Stop Loss line on an intraday basis on February 8th (and again on the 9th) but it closed above its SSI Stop Loss on both days.
ACLS went on to make new multi-year highs. Investors that had a stop-loss “in the market” on ACLS had a painful day on February 8, 2016. TradeStops subscribers tracking ACLS didn’t even know anything happened on February 8 and could still be in ACLS today with extra gains of as much as 100%.
FEEU is a leveraged ETF that focuses on the Euro Stoxx 50 Index. The ETF is fairly illiquid. But on the two days of the Brexit event, the trading volume moved to almost 5x its normal and it dropped at the open on 6/27/16.
On June 23rd, the day of the Brexit vote, this ETF was trading at $96.52. The SSI Stop was at $71.98. On Monday the 27th, the stock dropped in the morning to $66.88, well under the SSI Stop. But it then rebounded to close at $71.98.
Today, FEEU is trading back near the $90 level.
Investors have enough to worry about without having to worry about what kind of intraday shenanigans the market makers and high frequency traders might be up to.
Keep your stops out of the market and use end-of-day closing prices as the basis for evaluating your stops. That’s what we do in TradeStops … all for your peace-of-mind,
Richard M. Smith, PhD
CEO & Founder, TradeStops