As I was reviewing my charts and the financial news this weekend, I came across Mish's article:
Another Plunge in 3-Month Rolling Average of Petroleum and Gasoline Usage
He states, "Note that petroleum usage is back to December 1995 thru February 1996 levels. Gasoline usage is back to December 2001 thru February 2002 levels."
What strikes me from the chart is that both gasoline and petroleum usage are noticeably below their 2009 lows. My next thought is then, "How is this data affecting MLPs?". A quick glance at most MLP charts, and you'll instantly find that they have been soaring since 2009. With their large dividends, one would wonder why any long term investor would prefer sovereign debt to MLPs for income.
With that said, this article is not intended to discuss long term forecasts for energy or MLPs. I am a raging long term energy bull. However, the next 3-12 months are my primary concern with respect to the intermediate term portion of my portfolio.
My article last week made the case for a possible flash crash setup similar to May 2010. So how did MLPs respond during the flash crash, and what can we learn for today? Let's take a look at three examples: Enterprise Products (EPD), Energy Transfer Partners (ETP), and Kinder Morgan (KMP). Each of these charts shows a noticeable trendline break, followed by a 15-20+ percent drop during the flash crash of May 2010.
Will history rhyme? The setups are there, and MLPs are certainly prone to violent corrections. If a 15-20% drop does indeed manifest in these names, I'll leave it to the market to decide whether it occurs via a crash or over the course of the next 2-3 months.