Magellan Is Getting Another Leg Up
While Action Alerts PLUS focuses primarily on analyzing stock fundamentals, it never hurts to look at the charts of stocks in order to gain another perspective. Below, we are including charting analysis of Magellan Midstream Partners (MMP) from Real Money's technical analyst, Bruce Kamich.
We have been adding to MMP in recent weeks and will continue to look to do so when given the opportunity. We have scaled into the name in slow fashion, but we find the 4.5% distribution yield increasingly compelling in a struggling interest rate environment and believe there is further upside to shares, a view that we believe this charting analysis supports.
We encourage members to read through this information and use as desired, but we still point to our fundamental analysis as the best way to understand the story moving forward.
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Magellan Midstream Partners (MMP) looks poised to make a third leg to the upside in the next few months. MMP made a low around the election and soared higher over the next three months. Prices made a small double top around $82 and have corrected the past two months.
Beneath the surface, the decline has slowed and volume suggests that investors have stayed long. Let's drill down further to make our bullish case.
In this daily chart of MMP, above, we can see prices made their small double top near $82 in January and February. MMP moved lower into late March, but notice how the 12-day momentum study (lower panel) made a higher low as prices moved down. The higher low is a bullish divergence and tells us the rate of price decline slowed as $76 was approached.
Now, look at how steady the On-Balance-Volume (OBV) has acted the past two months. Investors have largely stayed with their long positions, rather than liquidate or aggressively sell. While MMP is below the rising 50-day moving average line, it may soon close above it.
In this weekly chart of MMP, above, we can see prices are above the rising 40-week moving average line. If you stand back a little from the chart, you should see that prices have made two advances or "legs" since early 2016. A third leg higher looks like it is about to get under way.
The weekly OBV line has been moving higher since December and tells us that investors are accumulating shares. The weekly Moving Average Convergence Divergence (MACD) oscillator has been above the zero line for most of the past year, which is bullish.
In this Point and Figure chart of MMP, we can see that prices have been correcting to the downside (column of O's). Support looks like it is nearby and a rally to $82.68 would open up the possible upside price target of $101.76. Not bad for a third leg higher.
Bottom line: Aggressive traders could go long MMP on a close above $78.50 and add on strength above $80 and $82. I would risk a close below $75 and target the $101 area on the upside.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long MMP.