MLPs Continue to Build a Top

Joseph Cioffi |

The MLP index chart continues to give us indications that we are in the process of building some sort of intermediate-term top. Top building in markets can be a very long process and we continue to at least see indications that the leadership position of MLPs ended back at the end of January when the index broke above 410. It's been down since in stair-step fashion.

Alerian MLP Index 4-24-2012(Click to enlarge)

Quarterly results and distribution increases have been pretty much in line with expectations. No surprises here and MLPs are very good at managing their businesses and market expectations. As long as distribution increases come at 2 percent or so each quarter, markets tend to price it all in ahead of time. Still 410 appears to be the new wall on the upside.

The tail wind that keeps prices from falling off the cliff here is the 10-year yield. After a brief run to 2.40 percent, we have seen the 10-year fall back down below 2 percent in response to the latest economic tribulations from Europe, where the monetary crisis continues to unfold on a daily basis.

The 10-year yield chart continues to build along the bottom, which hit 1.69 percent back last fall.

10 Year Treasury Note 4-25-2012(Click to enlarge)

So far this chart continues to tell us that the crisis is not over by any means. Watch the bottom here carefully, folks. A break below 1.70 comes with probably a lot of horror from Europe and no doubt it will impact markets here. With respect to MLPs, the yield picture remains supportive as long as yields go no worse than sideways. If yield markets break lower, my suspicion is MLPs will sell off with everything else. A break above 2.40 percent could be a negative relative to other stocks in that the fast money will probably go elsewhere. Sideways is probably best for the time being. In the meantime, ex-distribution time approaches in the next 10 days, so the checks will soon be in the mail.

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