PIPELINES ARE YEAR'S STRONGEST ENERGY GROUP -- ALERIAN MLP ETF COVERS THAT GROUP -- ONEOK AND MPLX ARE PIPELINE LEADERS -- TRANSCANADA CORP HOLDS 200-DAY LINE -- GLOBAL X MLP & ENERGY INFRASTRUCTURE ETF BOUNCES OFF 200-DAY LINE
DOW JONES US PIPELINES INDEX IS TURNING UP ... My last two messages suggested that the energy sector was trying to stabilize near its 200-day average. That's based on the assumption that the price of oil is also bottoming. My Saturday message further suggested that oil service stocks were showing better relative strength than the energy sector as a whole. In fact, pipelines are the best performing energy group this year, and the only one in the black. Chart 1 shows the Dow Jones US Pipelines Index climbing back over its 50-day average after a successful March test of its 200-day average. The index is also rising above a falling trendline extending back to early February. The DJUSPL/XLE ratio (top of chart) shows pipeline leadership throughout the first quarter. A BARRONS weekend article "High Energy Investing" alerted me to the upside potential for Master Limited Partnerships that provide the simplest way to participate in this group. And why that's so.
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Chart 1
ALERIAN MLP ETF IS TURNING UP ... Chart 2 shows the Alerian MLP ETF (AMLP) in the process of turning higher after a modest first quarter pullback. [MLP stands for Master Limited Partnership]. The AMLP has gained 3% so far this year versus -6% and -8% losses for the energy sector and oil service ETFs respectively. As far as I can determine, this is also the largest (and most liquid) of the energy MLP offerings. It's also the one mentioned in the BARRONS article. Energy MLPs invest in energy infrastructure which includes pipelines. One of the benefits of "midstream" pipeline operators is that they don't necessarily require a higher oil price to profit. Their job is to transport oil and natural gas from upstream producers to downstream refiners or distributors. All they require is relatively steady demand for those products which currently exists. The article also points out that MLPs are structured like REITs in that they pay out most of their profits through dividends. And they currently yield more than 7%. That makes them attractive for income investors.
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Chart 2
ONEOK AND MPLX TURN UP...TRANSCANADA HOLDS 200-DAY LINE... Two of the day's pipeline leaders are shown below. Chart 3 shows Oneok (OKE) clearing its 50-day average. It's one of the first pipelines to do that. Chart 4 shows MPLX nearing a test of its 50-day line. Chart 5 shows TransCanada Corp (TRP) finding support above its 200-day line. It still needs to clear its March high to turn its trend higher. But that's the company that's going to build the XL Pipeline.
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Chart 3
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Chart 4
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Chart 5
GLOBAL X MLP & ENERGY INFRASTRUCTIRE ETF LOOKING STRONGER ... For those wishing to stick with ETFs, here's another choice. Chart 6 plots the Global X MLP & Energy Infrastructure ETF (MLPX). The MLPX/SPX relative strength ratio (top of chart) has started rising again. The ETF also offers a stronger choice than the Energy SPDR (gray area). My thanks to BARRONs for such a fine article which I relied on heavily for this message.
