MLPs Still Trying to Hold Ground

Joseph Cioffi |

On Tuesday, we saw one of those post three-day weekend rallies, which seemed to have come to a halt as of yesterday, as Euro woes continue to dominate. I'm staring at the screen seeing a 1.69 percent yield on the 10-year and the MLP yield spread in excess of 400 basis points, wondering whether this is a good tradeable entry point for MLPs.

Alerian MLP Index 5-29-2012

The technicals on the chart are certainly telling us that we are somewhat oversold here and due for some sort of bounce, but its not oversold to the point where MLPs have been literally thrown out the window. Also note that the moving averages have crossed and turned lower, which is not a positive. So far the 360-365 level is holding and that’s good. We could rally back to 380-385 here without much difficulty. However given the tape action recently it may only be another place to sell. Again, this is if you are a trader in MLPs.

Meanwhile, one thing that has developed is that MLPs and the markets are now pretty much moving side by side. This has been the case since the beginning of May. MLPs have been in a downtrend since mid February while the broader market put in its double top. So now it is clear that MLPs and the market are linked side by side and Europe as we all know is in the drivers seat.

Dow Jones Industrial Average 5-29-2012

From the standpoint of corporate news, we are in a vacuum here for the next five or six weeks until the next round of distribution increases are announced. At that point, we will see whether shrinking margins, falling energy prices, and a weakening economy and a collapsing Euro zone are having impact. In the end it is that 10-year yield at a post World War II low of 1.69 percent that I’m looking at and thinking out loud that this can’t be good.

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