THE RALLY HAS LEGS!
I mentioned yesterday that this rally has a much better feel to it than any rally attempt in the past year.
One nice thing about this rally and a very encouraging sign is the movement in the single digit priced mlps as the number of those has been literally cut in half almost overnight. This leads credence to the idea that hedge funds over owned and vastly oversold this generally underowned group. The result has been some astounding moves in both directions.
I put up these 2 charts of the amz index verses the s&p 500 and i would like to point out that we are at a crossroads here.
Notice that in the last 3 months we have outperformed the S&P and we are about to cross here on the 6 month chart. A positive sign in my view. We had a rally back in October which took us from 160 to 220 in a hurry and i think we should be able to get to 220 on this rally phase as there is much more breath and firepower to it. We may have a shot to get to 240 if the dow rallies to the top of its range which is around 9600 and breaks above that to challenge 10,000. Also i believe it is wise to see where mlps are priced today relative to their last ex-distribution date. Yahoo historical prices will take you right to the ex-dis date for easy comparison. If the stock price is equal to or higher than it was back in November than i think its a good bet that the company will maintain its distribution. Atlas Pipeline (APL) for example has doubled from its low and it is still half of what it was back in November. Is the market forecasting a 50% distribution cut? And speaking of cuts Constellation Energy Partners (CEP) has rallied to 4.51 and they have already told us their distribution is being cut to 13 cents. That stock now yields 11% based on the new rate. Could it be that the market is signalling a long term bottom here? The stock has almost doubled from its low.
This morning we have slightly weaker stock futures and slightly stronger energy futures. Enterprise Products Partners (EPD) is doing a share offering and they are a big weight in the mlp index so we may have a bit of a downside distortion there. Since they trade over 20 dollars i guess they are taking advantage of the price rise. Not many mlps have the stock price to pull this off. Nothing on the upgrade downgrade list so far this morning.
Thanks to the rally my accounts are back to their 2004 levels! Weeeee!!!!! I guess judging from what some people are going through...thats a good thing! I'll be happy if i can get back to 05 on this upleg.
joseph cioffi's Source Page - Associated Content
3 comments:
Although I have enjoyed this rally from the abyss immensely, I have several concerns:
1. A sharp downward reversal in energy prices. With the economy slowing worldwide, this could easily happen. Domestic nat. gas could be particularly hard hit. One major brokerage just forecast $4 for nat. gas. That would kill the G&Ps.
2. The upcoming distribution announcements. I find it hard to believe that there won't be some cuts--particularly in the G&P space. Those MLPs that do cut will get hammered and it is hard to say what impact it will have on the rest of the sector.
3. A resurgence of volatility. If MLPs take another big hit, will we reach the point where the retail investor flees the sector for a long, long time?
Having said all that, I will hold on as I have throughout this mess. I just don't think it is time to celebrate yet.
On the other hand... bodding well for MLPs are the following:
1) They were, and still are, way oversold. They were caught up in deleveraging along with just about every other asset class and sold indiscriminately. In fact, Lehman's disportionate presence in the space spelled double trouble for MLPs.
2) The question I hear frequently asked these days is "Well, where CAN I put my money?" Given their history of high, tax advantaged income, I would think MLPs would drift pretty close to the top of a stock screener - particularily at these stupid valuation levels.
3) There's one hellovalot of cash on the sidelines getting frustrated with zero (or close to zero) yields. At the first sign that it might be getting safe to come out of the woods, asset classes like MLPs could explode.
Perhaps MLPs were overbought just prior to the global meltdown, but they have been disportionately punished for our sins. I frankly hope we just get back to fair valuations and check fear and greed at the door because they are the drivers that give all of us heartburn.
Lee
And there boys are the arguements for both sides of the trade.
Bruce...keep an eye on CEP as they have already told us they are cutting the distrution by 75% and the stock is back above 4 and the yield is down to 12%. Could be that massive cuts in distributions are already reflected in some mlp stock prices.
I think your other points are well taken! Certainly if the overall market goes back into the toilet so will we. The question is if the economy and markets weaken as credit markets improve..what impact will that have on the mlp class which went to ridiculous yields.
We will know in the fullness of time..and time is getting fuller by the minute...as the late great Ed Hart used to say.
Post a Comment