MLPs Bounce with Everything Else

Joseph Cioffi |

Last week was not a pretty week for Master Limited Partnerships as we saw the group decline by nearly 15 points, capped with a 9-point loss last Friday. Below, we have posted a weekly chart of the MLP index to at least gain a better perspective of what is going on in the longer term. Notice that the index is sitting right on the rising 89-day moving average in this sort of longer-term uptrend.

Alerian MLP Index 5-21-2012

The bounce on Monday came right off that level. The key will be whether this is a one-day bounce or something more. And the other question is whether that 8-point gain on Monday gets whittled away to nothing by week’s end. Lots of questions here. Chart support looks more impressive around the 340 level on a weekly basis. After that, it looks pretty dicey until we get down to around 290, which is the level we saw back in May of 2010. The trading picture is muddled further by the fact that we are entering that period between distributions and the rest of the quarter. Outside of the occasional headline not much happens to drive prices other than the overall action of the stock market itself.

From that standpoint it doesn’t look good either. The tape overall has been selling down in fairly rapid fashion. We just went down 12 out of the last 13 days as measured by the Dow Industrials, and that hasn’t happened since last August. Here too, Monday's bounce of 135 points was no surprise. However, unless the market can string together something stronger than a one-day bounce, it appears lower prices are ahead and Master Limited Partnerships will probably follow along. The distribution yields will probably be supportive unless something more sinister is at hand for the markets. Still for the longer-term investor you're getting an opportunity in here to slowly accumulate shares at more attractive prices and higher yields. It's just that if MLPs are in corrective mode, there isn’t any big rush. You can take your time and let prices come to you.

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