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The Enron Meltdown - The Charts vs. The Analysts!

Proverb:  Garbage in, garbage out.

Enron plunged from $90 a share into filing bankruptcy in under 16 months.  A Chart reader that knew how to identify support levels, would have known to sell the stock even though the Analysts upgraded the stock ALL THE WAY DOWN!

 

August 23, 2000 - Enron's stock peaked at $90 a share.  Coming off that notorious top the stock dropped down into its previous trading range between Support Levels 1 & 2 above $70 a share.  This small drop would have been no cause for serious alarm, but it would be a signal to keep an eye on the stock.

March 12, 2001 - The stock dropped significantly below Support Level 2 and started to trade below the $70 level.  The fact that the stock is now trading below its highest trading range is cause for concern.  The stock is now in its first downtrend in years.  The trend is your friend - trend is down - GET OUT!  The stock was volatile and traded sideways for over a month, giving a chart reader plenty of time to label the stock as weak and GET OUT!

Analyst Actions - March 12, 2001 - August 8, 2001 - Reiterated Strong Buy - 5, Reiterated Buy - 5, Reiterated Hold - 5, Reiterated Add - 2, Initiated Buy - 1, Initiated Hold - 1, Reiterated NT Neutral - 1, Downgrade to Market Outperform- 1.

Analyst Action Summary - 1 Downgrade as the stock drops from around $70 to $45.  20 Recommendations to either Buy Enron or Hold it.

August 8, 2001 - The stock broke Support Level 3 which is at about approximately $45 a share - 50% off the top of August 23, 2000.  This breaking of support was a MAJOR RED FLAG TO GET OUT of any long positions and to possibly put a short position on.

August 14, 2001 - Enron's CEO Jeffrey Skilling surprisingly resigns!  On August 15, 2001 the stock breaks down through Support Level 4 ($41).

Analyst Actions - August 14, 2001 - September 5, 2001 - Reiterated NT Neutral - 1, Upgrade to Strong Buy - 1.  Downgrades - 0.

September 5, 2001 - Support Level 5 ($35) is broken.

September 19, 2001 - Support Level 6 ($29) is broken and the stock trades down to, and holds, Support Level 7 ($26.20)

Analyst Actions - September 19, 2001 - September 27, 2001 - Upgrade - Buy to Strong Buy - 2, Downgrades 0.

September 27, 2001 - Support Level 7 ($27) is broken briefly but the stock bounces back.  Between September 27 and October 11 the stock rallies back to just above Support Level 5 and then reverses to break Support Level 7 and Support Level 8 seven trading days after October 11.

Analyst Actions - September 27, 2001 - October 22, 2001 - Initiated Strong Buys - 2.  Downgrades - 0.

October 22, 2001 - Support Level 8 ($23.75) is broken.

October 24, 2001 - Support Level 9 ($20.50) is broken.

Analyst Actions - October 24, 2001 - December 2, 2001 - Upgrade to Strong Buy - 1, Upgrade to NT Accumulate - 1, Reiterated Strong Buy - 1, Reiterated Add - 1, Initiated Strong Buy - 2, Initiated Buy - 1,Initiated Hold - 1,Downgrades - 0.

December 2, 2001 - Enron files for bankruptcy.  The stock closes on its previous trading day at $1.23.

SUMMARY - Stock dropped from over $70 to bankruptcy. 

Positive Analyst Actions or Reiterations - 34.  Downgrades -1.

NOTE: Analyst Action source - Briefing.com

 Support Lines work! 

Breaking of Support Lines = SELL

The Enron Meltdown - Trend line Analysis

Not once during the entire Meltdown did Enron break its Down Tend Line and give a Buy signal.

ENE - February 5, 2001 to October 24. 2001