Wednesday’s ETF To Watch: Alerian MLP Index ETN (AMJ)

by on August 17, 2011 | ETFs Mentioned:

Wall Street finished in red territory yesterday, loosing its footing around lunch time as investors retreated after European debt woes returned to the forefront. European leaders failed to provide a concrete plan for dealing with the ongoing debt crisis in their latest meeting on Tuesday. However, German and French leaders did propose a tax on financial transactions, but dismissed the proposition to issue Euro-zone bonds. Amidst the ongoing uncertainty, gold made yet another move higher, surging by $30 during Tuesday’s trading session and closing right around $1,790. Crude oil futures faced some headwinds as volatility kept prices range-bound for the majority of the day, managing to close right above $87 a barrel.

August has been quite brutal for equity investors and since the begging of the month the S&P 500 has lost over 7% as of today. While the market has considerably come off its 8/9/2011 lows, certain asset classes, such as MLPs, have managed to stage a much stronger rebound. When considering the time frame mentioned above (8/1/2011 to 8/16/2011), the Alerian MLP Index (AMJ) is a great candidate for our chart to watch since this product has respectably held its ground and shed just over 1% [see Talking MLP ETFs With Kenny Feng Of Alerian].

Chart Analysis

AMJ is without a doubt in a very strong long-term uptrend, and the fund is currently in an interesting spot considering that it’s trading below its 200-day moving average (yellow line) for the first time since its inception [see AMJ Charts]. The recent dip was without a doubt an excellent entry point for long-term energy bulls.

Click to Enlarge

This fund has staged quite the come-back following the most recent sell-off last week, and is now very close to trading back above its 200-day moving average once again. Although MLPs are largely correlated with equity market performance, its evident that this time around the asset-class has better held its ground as investors have flocked back to this corner of the market much more aggressively than equity funds as a whole [see AMJ Fact Sheet].

Outlook

AMJ appears to have resumed its ongoing uptrend since the fund is practically trading at levels prior to the recent sell-off. From a technical perspective however, caution should still be exercised as the fund remains below its 200-day moving average [consider MLP ETFs: Fact And Fiction]. Assuming the worst is behind us, AMJ can certainly climb to $38 a share and beyond over the coming weeks. In terms of downside, if equity market weakness persists and carries over into the energy corner, support for AMJ comes in at $35 a share, while a close below that easily brings the $32 level in sight. Conservative investors should consider going long after AMJ closes above $37 a share for two or more consecutive days. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.