By Michael Tarsala
Crude is in the midst of its longest rally in two years, and the latest research from technical guru Tom McClellan makes a unique, visual case using Google Trends data for why it oil prices could go even higher.
McClellan, editor of the McClellan Market Report, is rarely afraid to try something new. His latest work is indeed novel. It involves charting a continuous chart of oil futures, relative to the Google searches for the term “oil prices”, as well as related news volume. I find it to be a very savvy use of the Google Trends technology.
The upshot of McClellan’s work: Oil peaks in 2005, 2008 and early 2008 — and the subsequent selloffs — happened when there also was a multi-month runup, then a subsequent fall in oil news and searches. And right now, McClellan’s data suggest there’s not nearly enough squawking for oil to be near a top.
McClellan’s research may also have, by extension, a bearing on energy MLPs. In case you are not familiar with them, MLPs are unique securities that have the tax benefits of a limited partnership.
Now, it does not necessarily follow logically that MLPs would be correlated with oil. Most MLP investments are in pipeline and transport companies — not oil exploration and production. You would think that a correlation exists between E&P stocks and oil prices, but not with oil and the companies that move oil.
Still, some investors have noted a growing correlation between stronger oil prices and MLP returns.
There are two Covestor models that allow you to follow along with a proven MLP model manager, trade-for-trade: Dan Plettner’s MLP Direct Ownership, as well as BGG MLP Research’s MLP Total Return model. You can track their latest investments at interactiveadvisors.com.
As a group, the MLPs might be worth checking out, if you happen to be seeking energy expsoure as well as divdends. As a group, they typically yield more than double a 10-year Treausry.
That may especially be true if the correlation continues to strengthen and McClellan is right about oil’s direction.
