Admit it, there have been times you've invested in a stock and didn't care to enter the stop loss order. The company was too strong and the stock too underpriced. It appeared the easiest trade known to markets and became the closest thing this side of the Powerball jackpot to free money. All until your account balance exploded-in the wrong direction.
With the DOW posting triple digit moves in 6 of the last 10 sessions, it's safe to say the dreaded volatility is back in a way even the Volatility Index (VIX) couldn't describe. Couple that with the mediocre volume that continually haunts the big board and the chances of wild price swings grows even larger.
As a result of the extreme volatility a fair amount of traders should look to tighten their stop loss orders. The average orders limits losses to 10%, but such widespread share price movements should encourage those of the low risk variety to implement stops at 5%. A growing reason for the caution is the fact that a lot of these price swings aren't going in the right direction. Even the most recent market rally has still decimated a number of sectors with only the most defensive names, such as the likes of Wal-Mart (WMT) and Target (TGT), winning out. Still, even the safe haven industries have suffered their pitfalls. One example is McDonalds (MCD) which has shed 15% over the last few months.
Listed below are 15 big name companies and their second quarter falls which might shed some more light on the necessity of tight stop loss orders.
- JC Penneys (JCP): -35%
- U.S. Steel (X): -39%
- Nucor (NUE): -20%
- Green Mountain Coffee (GMCR): -58%
- Fossil (FOSL): -42%
- Google (GOOG): -13%
- Priceline.com (PCLN): -14%
- Walter Energy (WLT): -25%
- Sears Holdings (SHLD): -40%
- Baidu (BIDU): -22%
- Deckers Outdoor (DECK): -23%
- Lululemon (LULU): -15%
- Carbo Ceramics (CRR): -33%
- Salesforce.com (CRM): -10%
- Juniper Networks (JNPR): -26%
Also note that safe haven sectors such as discount stores and dollar stores have enjoyed monumental runs as investors flock to safety and also require tight stop loss orders as significant profit taking is possible.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.