Master limited partnerships and sector-related exchange traded products surged Tuesday as traders jumped on an oversold segment of the market after months of declines on falling energy prices.
MLPs were among the the best performing exchange traded funds and exchange traded notes on Tuesday, with the RBC Yorkville MLP Distribution Growth Leaders Liquid Index ETN (NYSEArca: YGRO) up 7.4% and UBS ETRACS Alerian MLP Infrastructure Index ETN (NYSEArca: MLPI) 7.0% higher.
Meanwhile, the two largest MLP-related ETPs, the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) and Alerian MLP ETF (NYSEArca: AMLP), rose 6.4% and 7.1%, respectively.
MLPs have been among the worst performing assets of the year, with AMJ down 40.4% and AMLP 35.6% lower, as crude oil prices dipped back toward seven-year lows.
However, technical traders may have noticed after months of selling, the MLP-related ETPs were trading near oversold levels. For instance, looking at the relative strength index, a technical momentum indicator that compares the magnitude of recent gains to recent losses, AMJ showed an RSI of 18.7 on Monday, or below the 30 level that suggested the market was oversold.
Energy pipelines and storage companies have fallen off over the past couple of weeks as traders anticipated falling revenues on lower oil prices and declines in distributions, reports Corrie Driebusch for the Wall Street Journal.
At the crux of the matter, investors are worried that a traditionally attractive dividend-paying asset would no longer be able to maintain its steady payouts as U.S. oil output starts to decline after the steep drop-off in crude prices.
MLPs earn money by transporting energy or storing the products. Since revenue is based on volume, MLPs may be less sensitive to crude prices. However, with crude oil prices near seven-year lows, investors are growing concerned about the energy industry’s ability to keep pumping oil.
For instance, the energy sectors cuts to distributions has caused industry bellwether Kinder Morgan (NYSE: KMI) to cut dividends by 75% on Tuesday, the Wall Street Journal reported.
Nevertheless, some are calling a bottom in the energy market. For instance, AlphaShark Trading founder Andrew Keene pointed to a triple bottom in the S&P 500 Energy Sector, a potentially bullish indicator, reports Amanda Diaz for CNBC. The sector hit a bottom in August and bounced, then in October and bounced, and we could be seeing another rebound in the making. A triple bottom chart pattern is often viewed as a reversal of a long-term downtrend.
JPMorgan Alerian MLP Index ETN
For more information on master limited partnerships, visit our MLPs category.
Max Chen contributed to this article.