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A tanker at the Kinder Morgan Westridge marine terminal in Burnaby, B.C. Kinder Morgan Energy Partners LP shelved a $2-billion (U.S.) plan Friday, May 31, 2013, to convert a natural gas pipeline to carry cheap West Texas crude to Southern California, citing lack of shipper interest.

Rafal Gerszak/The Globe and Mail

This week Scott asked for an analysis of three of the stocks trading under the Kinder Morgan banner. On Monday the case for Kinder Morgan Inc. was investigated. Today the situation at Kinder Morgan Energy Partners LP (KMP-N) will be examined.

KMP operates as a pipeline and storage company under a master limited partnership structure which is similar to the income trust format that was more familiar to Canadians. Income trusts were t-boned in the Halloween Massacre of 2006 when the Harper government changed the tax treatment of the trusts.

Kinder Morgan Inc. is the general partner in the arrangement and receives a substantial portion of KMP's distributable cash flow. The yield on distributions is now 7 per cent.

Story continues below advertisement

An audit of the charts will help in the comparison of the shares of KMP against the other members of the Kinder Morgan portfolio of companies.

There are a number of patterns on the three-year chart that warrant consideration. The first is the downtrend that started in April of 2013 when the shares topped out just above $85.00. The retreat dragged the stock to a retest of support at $70.00 by March of 2014 where the MACD and the RSI signalled a buy. The bounce off the March lows has seen KMP break above the 50- and 200-day moving averages and the downtrend line. The issue at hand in the current environment is if the resistance at $80, which has been in place since October of 2013, can be overcome.

The RSI on the six-month chart indicates that the shares moved into overbought territory in June of 2014. What we can see is that there appears to be an appetite for the stock and that investors have been willing to buy on the dips. What is also evident is that we are on the verge of a golden cross and that a new leg up has begun. Resistance at $80.00 needs to be overcome and if there is a pullback support comes in at $77.00.

The 7 per cent yield makes this an attractive investment for income investors willing to assume greater risks for higher returns. If this description fits your investor profile then you should consider accumulating shares along this advance.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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