Anatomy Of A Top

With the markets coming under some distribution, I decided
to do something
different in
this report. Some of you that are members of TM are pros at this
game,
but some of you may be starting out or still unsure of yourself. The

following commentary is for you.

ANATOMY OF A TOP

Technical analysis takes away all the news and all the
noise. That is the
main point I
want to make here. Many investors have been destroyed in the
stock
of Enron
(
ENE |
Quote |
Chart |
News |
PowerRating)
over the last year, and specifically over the past three
months. It
need not have
happened. Enron’s action gave any number of clues before the big
debacle.
While analysts all had strong buys and defended it on every drop,
the
stock was telling a much different story.

The first identifying mark of a top happened between
8/23/2000 (A) and 9/29/2000 (B).

The stock made what is called a triple top.
This is the point where the stock
refused
to go higher on three different occasions. They were 8/23, 9/18 and

9/29 of 2000. That should have been your first
worry sign.

But you may be a long-term holder or you may be in love
with the stock
because of what it
HAD done…so it is understandable to want to hang in there.

We then come to the next important
juncture…and this one is a little
trickier.
Notice the action on 11/29 and 11/30 of 2000 (C).
Both those days were
high-volume
drops as the stock fell from $81 to $65. That was not Aunt Mary
and
Uncle Bob selling. That was the big boys. The most important key was

volume. So what happens next? The stock ramps
up on…of course…all the
analysts
defending the drop. You know…” We reiterate our strong buy and

feel the drop is unwarranted. We keep our
target price of $1000.” You get the
hint.
The whole month of December 2000 saw a large move back up…but what’s

missing? It is called…no conviction. Volume
remained low all the way up.

The volatile moves at the top and the large-volume drop
along with a low
volume rally should
already have your antenna up.
If you
weren’t out of the stock already, 1/4/2001(D)
should have rung your alarm
bell.
The stock gapped down on another monstrous volume day. This is just

another clue of institutional selling. Again
it rallies, but again without
any
conviction.

So where should the party have ended for you? How about
3/12/2001 (E)? What
happened?
Simply put, the stock broke 11-month support on that day. The stock

had held the mid-60 level for that amount of
time. On 3/12/2001, Enron closed
at
$61.

But you may be a glutton for punishment. You may have been
listening to your
broker and his
or her famous line…”Don’t worry, everything is OK. The stock

will come back. It is a great company.”

5/17/2001 (F)
had to be your next great clue to…GET OUT! Just another 12-million-share
large-drop day. What more do you want? Well, at this point you
may
have been into the hope and prayer routine. Trust me, it doesn’t work.

8/15/2001 (G) had to
get you out. This was a 29-million-share day on a gap. It is
not
a very good sign when the man who runs the company resigns for
“unknown”
reasons.

Well, the rest is history. Your last clue had to be in the
20s when the CEO
refused to
answer analysts’ questions about conflict of interest partnerships

with the CFO. This is where, finally, most
analysts jumped off the ship…after
a
75% drop…but that’s been normal for them over the past 18 months.

Heavy volume…breaking of support…light-volume
rallies…CEO resigns for
unknown
reasons…unanswered questions by management…undisclosed
partnerships…don’t
ever let this happen to you. Oh, did I mention insiders
were
selling large blocks of stock all the way down? This is the type of

stock that I cut out a picture of and keep
around to make sure it never
happens
to me. Do your technical analysis.