Active traders who are interested in gaining exposure to specific market subsectors often turn to exchange-traded products for ideas. One group of specific interest this week is energy infrastructure due to the breakouts beyond key levels of long-term resistance. In this article, we'll take a look at several charts that are pointing to higher prices and try to identify how active traders will be looking to make their trades.
UBS ETRACS Alerian MLP Infrastructure Index ETN (MLPI)
For many income-seeking investors, exchange-traded notes (ETNs) such as the UBS ETRACS Alerian MLP Infrastructure Index (MLPI) are often favorites because of their focused exposure to energy infrastructure master limited partnerships (MLPs). The 25 holdings offer a breadth of exposure that limits risk while maximizing diversification.
Taking a look at the chart, you can see that the bulls have managed to send the price above the resistance of its 200-day moving average. The close and subsequent crossover between the 50-day and 200-day moving averages (shown by the blue circle) will likely be used by followers of technical analysis to mark the beginning of a long-term uptrend. Monday's bounce off of support confirms that the bulls are in control of the momentum, and stop-loss orders will likely be placed below $22 in case of a shift in sentiment.
Enterprise Products Partners L.P. (EPD)
The top holding of the MLPI ETN, which may be of specific interest to active traders, is Enterprise Products Partners L.P. (EPD). With a weighting of over 10%, the large-scale provider of midstream energy services offers active traders one of the most lucrative stock chart setups found anywhere in the public markets.
As you can see below, the price recently surpassed a key level of resistance, as shown by the dotted line. The close above the trendline and recent crossover between the long-term moving averages clearly indicate that the bulls are in control of the trend. Followers of technical analysis will undoubtedly look to the recent period of consolidation and close near the support of the 50-day moving average as a buying opportunity. From a risk management perspective, traders will likely want to keep their eye on Enterprise Products Partners because a significant move higher could be in the cards.
Magellan Midstream Partners, L.P.
Another holding of the MLPI ETN that active traders will likely want to keep an eye on is Magellan Midstream Partners, L.P. (MMP). This is one of the most widely followed publicly traded partnerships, and as you can see from the chart below, the price is trading within a defined ascending triangle pattern.
This pattern is commonly looked to as a continuation pattern within a defined trend, but in the case of MMP, it appears as though traders are looking for a reversal. A close above the nearby resistance level could be used to mark the start of a new long-term uptrend, and buy-stop orders will likely be placed near $64, which would act as a catalyst. At current levels, stop-losses are likely to be set below the ascending trendline or the psychological $60 mark.
The Bottom Line
Energy infrastructure is a relatively under-followed subsector of the broader energy sector. Based on the patterns shown above, it appears as though now could be the ideal time to add exposure due to the clearly defined buy and sell levels.
At the time of writing, Casey Murphy did not own a position in any of the equities mentioned.