Pipeline Partnerships Turn on Dime Rallying 12% Over Two Days

  • Alerian MLP fund hasn't had back-to-back gains in a month.
  • Technical bounce ascribed to weeks of unrelenting declines.

Bulls on master limited partnerships just enjoyed a benefit they haven’t seen in more than a month: a two-day rally.

The Alerian MLP ETF, which tracks energy investments known for their cash payouts in the Alerian MLP Infrastructure Index, has climbed 12 percent since Monday. The gains snapped a five-day streak of losses in the fund, which had dropped 42 percent in 2015 through Dec. 7.

Shares tumbled to a record on Monday as speculation mounted that MLPs will have to start cutting dividends in order to preserve their credit ratings. Investors shifting into buy mode may be speculating energy shares have bottomed after strategists across Wall Street expressed optimism by increasing ratings on energy companies.

“All the stocks in the energy sector and their associated securities have been painted with the same brush as they’ve taken big hits,” said Walter “Bucky” Hellwig, who helps manage $17 billion as a senior vice president at BB&T Wealth Management in Birmingham, Alabama. “There’s been a lot of bad news, and they got oversold, which opened up the possibility for the technical bounce you’re seeing. People are starting to think crude oil prices may have stabilized here.”

Just this week JPMorgan Chase & Co. boosted its rating on U.S. energy companies to a buy and Barclays Plc upgraded global oil producers.

While the ETF’s rebound has taken place over the last two days, it was already flashing signs of a bullish reversal. Short interest in the fund fell to the lowest since January on Nov. 30, according to data compiled by Bloomberg and Markit Ltd. Further, the relative strength index for the MLP ETF was below the 30 for the four days leading up to Wednesday. That’s the threshold some traders view as a point where rallies are likely to materialize.

Big price swings aren’t out of the ordinary for the ETF, especially lately. The fund has seen an average daily move of 2.3 percent over the past month, compared to 0.8 percent for the Standard & Poor’s 500 Index over the same period. The ETF has moved 1.1 percent per day on average over the last year.

Energy shares in the S&P 500 also rebounded Wednesday, adding 1.3 percent after five days of losses. Kinder Morgan Inc. jumped 6.9 percent after North America’s largest pipeline operator slashed its dividend to preserve its credit rating. While the cut reduces the payout to shareholders by 75 percent, it was deep enough to forestall any need to issue new shares to raise capital through at least 2018, the company said.

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