On May 6 the broader market averages were headed for a sizeable decline, but the selling was orderly.

What happened over a span of roughly 15 minutes was extraordinary: The Dow Jones Industrials Average plunged from about 350 points down to almost 1,000, and the S&P 500 sliced through a key support at 1,100, hitting a low of 1,065. Soon thereafter, the market recovered, rallying back to roughly where it was before the precipitous drop.

No one can say with any degree of certainty why this mini-crash occurred. The most common explanation is a so-called “fat finger trade”–that is, a trader keyed in a sell order denominated in billions rather than millions. Such a mistake tends to snowball; stop-loss orders are activated, and the quick selloff triggers institutional sell programs.

But regardless of the cause, one thing is certain: The quick selloff did not represent normal market trading behavior and had nothing to do with underlying market fundamentals or any piece of news. Liquidity dried up at the lows, and very few shares changed hands–even in prominent large-cap names.

Take the case of Procter & Gamble (NYSE: PG), a safety-first stock that tends to be less volatile than the broader market. At the height of the selloff, P&G traded under $40 per share, down 37 percent from the prior day’s close, even though no news came out that would have precipitated such a decline.

Only a little over 26,000 shares of P&G actually traded at between $39.37 and $43. That’s next to nothing when you consider that P&G trades more than 11 million shares on average and traded nearly 29 million shares yesterday. In short, the market simply stopped functioning.

It’s no surprise that a day which features extreme moves in a highly liquid stock like P&G would produce even more examples of aberrant trading in less-liquid and more thinly traded stocks. As I mentioned in yesterday’s Flash Alert, many of the MLPs we recommend in this publication suffered from the anomaly.

For example, Linn Energy LLC (NSDQ: LINE) tumbled to an intraday low of $12.60–down 50 percent from the prior day’s close–before recovering most of those losses by the close. The graph below tracks this unusual price movement.

Source: Stockcharts.com

Linn’s units dropped substantially at the height of the financial crisis, but that selling was orderly. Note that the intraday range for Linn on May 6 is the biggest gap in its history.

Just as P&G had no liquidity near those lows, scant trading occurred near Linn’s lows. The master limited partnership’s (MLP) units were involved in 218 transactions at prices between $12.60 and $17 yesterday, a total volume of about 51,000 units. On a normal day roughly 1.6 million units of Linn change hands; yesterday the volume was closer to 7 million units.

When Linn traded at that level, the bid-ask spread–the difference between the price at which you can buy a stock and the price at which you can sell it–expanded to well over $1. In a normal trading environment, the bid-ask spread would be around 5 to 10 cents. Linn’s units likely would have traded lower on May 6 in sympathy with the broader market, but a price of $12.60 suggests the market wasn’t functioning properly.

Although the trading action in Linn and other MLPs was unrealistic and dysfunctional, this drop had real implications for some investors, particularly those who set stop orders or trailing stops. Stop orders instruct a broker to automatically liquidate a position once the stock breaches a certain price. In most cases, traders use stop market orders; as soon as the stop is activated your broker will execute a market sell order to get you out of a stock at whatever the prevailing price might be.

Undoubtedly, there were plenty of investors in Linn, P&G and a long list of other stocks that got stopped out on the vicious intraday decline on the May 6. To make matters worse, liquidity was at a premium at the height of the selloff; many stop orders would have been executed at extraordinarily depressed prices. Stop-related selling not only cost investors a lot of money yesterday but also contributed to the broader selloff.

Ownership of MLP units tends to be concentrated among individual investors rather than institutions. Because individuals are more likely to set stops, prices of MLP units dropped more than shares of other companies.

Although no one could have anticipated a 100 percent roundtrip move in Linn Energy’s units in 15 minutes, several MLPs have experienced wild intraday action over the past few years. These gyrations were undoubtedly caused, to no small extent, by the activation of scores of stop loss orders at around roughly the same price levels. Invariably these quick selloffs and recoveries will result in investors getting knocked out of an MLP at the worst possible moment.

When trading stocks, stop losses can be an outstanding way to reduce risk–I recommend stops on some positions in The Energy Strategist. But stops don’t make sense for MLPs.

Your best bet is to keep on top of underlying fundamentals. If a partnership’s business is sound and its distribution secure, it’s a worthwhile investment; if an MLP has fundamental problems, it’s time to exit the position.

Whenever the market heads steadily higher, hosts of investors hope for a pullback as an opportunity to buy. But when the correction actually hits, these erstwhile dip-buyers often disappear; the panic and fear that drive every correction take over.

These panic-fueled bouts of volatility are an enormous opportunity. The current market environment offers plenty of chances to accumulate our buy-rated MLPs at attractive prices.

The broader market selling has been driven by concerns over about Greece’s sovereign debt. In the grand scheme of things, Greece’s economic woes wouldn’t have a huge impact on the global economy in isolation. But investors fear that the contagion could spread; Greece’s credit woes have already impacted Portugal, Spain, Hungary and other countries on Europe’s periphery, and some fear that it could spread to larger economies such as the UK or US.

Another fear is that sovereign credit woes will infect the interbank lending market, touching off another global credit crunch akin to what happened after Lehman Brothers declared bankruptcy.

Credit woes are a problem for MLPs because these companies use debt and credit lines to fund new projects and to make acquisitions. But the risk of a 2008-style credit collapse is remote. Check out the graph below.

Source: Bloomberg

This graph tracks the TED spread back to 2005. The TED spread is the London Interbank Offered Rate (LIBOR) minus the yield on a three-month US treasury bond. LIBOR is the rate banks charge to lend to one another, while the three-month US bond yield is considered a risk-free interest rate. The spread is typically measured in basis points, equal to 1/100 of a percent.

When LIBOR rises relative to government bond yields, it indicates stress in the interbank lending markets. In other words, high TED spread readings reflect a credit crunch.

As you can see, the TED spread soared in 2007 and 2008 as the credit crunch and financial crisis worsened. You can also clearly see the improvement in this market since early 2009; in fact, the TED spread was at record lows just a few months ago. This trend has enabled MLPs to raise significant capital for expansion–a huge tailwind for the group.

The TED spread has spiked a bit recently but still indicates that interbank credit markets are extremely healthy right now–the spread is at even lower levels than it was in 2005 and 2006.

Another severe credit crunch appears unlikely, but most of our favorite MLPs already have raised significant capital via debt and share issues, providing plenty of capital to fund current growth plans even if debt markets do constrict.

Against that backdrop, any weakness in your favorite MLPs is a great opportunity to jump in and buy.