Wednesday's ETF to Watch: Alerian MLP Index ETN

| About: JPMorgan Alerian (AMJ)

By Stoyan Bojinov

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 (NYSEARCA: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. The recent dip was without a doubt an excellent entry point for long-term energy bulls.

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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].


AMJ appears to have resumed its ongoing up-trend 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.

Disclosure: No positions at time of writing.

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