Is the Bull Market in MLPs Over?

Joseph Cioffi |

This question has to be at the top of the list of questions to ask these days, along with whether long-term interest rates have bottomed and whether Apple (AAPL) will be the first trillion-dollar company as measured by market capitalization. We will tackle the first two questions today, leaving the third to others as Apple is as much about Apple as it is about the overall market sentiment, which remains strongly bullish.

One major development last week was the long-term interest rate picture, which appears to have changed direction for the short term, and perhaps even the intermediate term.

TNX Index

It appears that a bottom is in place on the weekly chart and we ran right to the October high yield at 2.40 percent. Currently, we are hovering just below this level. Long-term rates here on the weekly chart seem to be telling us that the panic, Europe-collapse low around 1.69 percent is the bottom. While a another trip down there can’t be ruled out, the yield picture is telling us that things are slowly trying to revert back to what used to be considered normal.

Now this has implications for MLPs, which have had a rate tail wind at their backs for over three years as well as a lending market where capital was cheap and relatively accessible to companies with a good balance sheet. Those tail winds will slacken if the yield bottom is in place, though we have a long way to go before the cost of money actually becomes a problem.

AMZ Index

The technical picture for MPs is becoming a bit muddied. The uptrend from the October low seems to have been broken and the index has now turned sideways. The index is back over 400 as of Monday afternoon trading but we will have to see what happens if the index gets back to 410, which is where the high is. On the other side of this 395 is the tradable bottom here. So it appears we have, at the very least, some sort of consolidation pattern to deal with over the next several weeks. The bottom holds as long as rates don’t begin an upward surge. 2.75 percent on the 10-year is a probable upside target in yields but I don’t think that would be enough to cause any issues in MLP land. Anything above that might bring sellers of interest sensitive investments. My guess is that MLPs will provide the leading clue as to the direction of long-term rates, so we will be watching the charts carefully for further developments.

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