Pipeline Opportunity With An MLP ETF

Buoyed by rising oil prices, the ALPS Alerian MLP ETF (NYSEArca: AMLP), the largest exchange traded fund holding master limited partnerships (MLPs) is up a solid 3.9% over the past month and nearly 23% over the past 90 days.

The charts indicate AMLP could have some more upside to offer over the near-term. MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around.

Consequently, MLPs have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines.

Related: Downtrodden MLP ETFs May Offer Long-Term Opportunity

With the markets flooded with oil and prices still depressed, basic economic theory suggests that consumption could rise to capitalize on the cheap crude. With higher consumption, MLP tollkeepers could profit off the increased transportation or storage of energy.

“Looking at the daily setup, we have a rising wedge pattern, and while this can trigger a buy on a breakout above the upside resistance, $12.50 in this case, it tends to fail more often and break lower. The wedge is so tight that we only see 2% between breakout and breakdown. I do still like the idea of a long AMLP play, but I expect we’ll see a period of consolidation,” reports Timothy Collins for TheStreet.com.