We’re all familiar with the Flash Crash of May 6, 2010 when the stock market fell nearly 10% in a matter of minutes and then recovered sharply:
And more recent events like August 21, 2015 when many stocks, like Apple, opened up 10% lower only to recover sharply the same day:
These kinds of widespread volatile intraday moves get a lot of attention from the media, as well they should. Sharp intraday moves like these are devastating to investors who are trying to protect themselves by putting stop loss orders in the market. Stops can and do get taken out during these intraday drops.
Professional traders call them “wash and rinse” moves because they hose down and wring out unsuspecting investors and traders.
I asked my team to find me some good examples of these intraday wash and rinse type moves. Even though I’m well aware that these kind of shenanigans go on in the markets, I was shocked at how prevalent they are. Even blue-chip juggernauts like Pepsi and Procter & Gamble are not immune to these kinds of moves.
I’ve included the Smart Trailing Stop levels on the following charts to give you an idea of how stops can get taken out intraday if you’re not careful. (Of course if you’re using TradeStops this will never happen to you.)
On August 24, 2015, Pepsico (PEP) made an outrageous intraday move from a high of $93.09 to a low of $75.36 before finally closing back near the high of the day at $90.49. That’s a nearly 20% intraday wash and rinse move. It was a swing of nearly 30 BILLION dollars in the market capitalization of PEP.
During the Flash Crash on May 6, 2010, Procter & Gamble (PG) dropped nearly 40% from a high of $52.18 to a low of $32.78 before closing at $50.58. That’s a 37% intraday wash and rinse move during which the market capitalization of PG changed by 70 BILLION dollars.
On October 30, 2014, the mid-cap Vornado Realty Trust (VNO) dipped from a high of $93.35 to a low of $80.70 before closing right back near its highs at $93.29. That was an intraday dip of over 13% or 2 BILLION dollars of market capitalization.
Moves like these are much more prevalent than anyone cares to admit. They’re sheer existence is an affront to the façade of fair and orderly markets.
TradeStops is focused on servicing investors looking to ideally buy and hold stocks for a year or more. What happens between 9:30am and 4pm doesn’t concern us. We’ve got better things to do. We pay attention to where the dust settles by the market close … and we never ever put our stops in the market.
Richard M. Smith, PhD