November 24, 2000
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Re: ELON Technicals
Honestly, I expected at least one, and more likely several questions on this thread following the link to the chart. Questions like � " OK T.A. people, so what does THAT mean." Or, "So, Mr. Trenchrat, what are you implying here?" Or, even someone getting personal : "Trenchrat, I know you are respected around here for your T-A prowess, but you will never, ever, convince me that a chart of the history of stock price movements has any valid predictive capacity as far as determining future stock price. So, why should I care?"
Maybe we'll still get those!
My old friend and comrade-in-arms, the T-bone Rat just LOVES to throw down the gauntlet like that. For him it is an ultimate source of entertainment, and I guarantee that he is reading this note with a chuckle, and perhaps even a guffaw. I hope so.
As I peer at this "picture", far more than 1,000 words emerge. Here are just a few random ones.
1. This company debuted its public offering in mid-summer of 1998 (July 28, actually) at a closing first day price of $7.
2. The price quickly plummeted to as low as $2-3 in early Sept. '98, but by year-end had recovered.
3. The first sign of explosive price potential was the spike to above $15 for two days in January '99 (Jan 12, 13), only to be followed by a disappointing retreat back to IPO levels ($6-10) where it continued to trade for virtually the entire year of 1999. (Ahhhh, I remember it well.) It was the epitome of "dead money". Sure, there were a few "teasers" along the way, but until Oct. '99, there was virtually no interest from the market, as reflected by the volume graph. BTW, this long "basing" period also provided the basis for the eventual "break-out" from this range.
Since this "chart" is a reflection of price movement, and since price movement is a reflection of market sentiment, and since market sentiment is a reflection of a condensed host of conflicting arrays of numbers and aspirations � this "picture" is "short-hand" in the truest sense. If we were to overlay the announcement dates of important P-R, the dates of the LonWorld conferences, the dates of earnings announcements, and the dates of increased media hype and general interest in "home networking" � then we would clearly see many correlations, both in price and volume. So, those type of events, as they will occur in the future, will also provoke "reactions", and are impossible to forecast.
But, underlying those "event �driven" price movements is other investor behavior. Long term interests, short term interest, buying patterns, selling patterns, holding patterns. The type of response to a price drop, the type of response to a spike, the effect of time on investment psyche � in short, human nature as regards money. And many of these patterns ARE predictable.
4. At the peak of the early spring 2000 mania, our beloved little company was for awhile a darling of Wall St., and redeemed the hopes of many who had been early purchasers. It also attracted the interest of many others, who had never heard of the company before the incredible run to $100+. Some folks took sizable short and long term gains from that run on profits from $50 -$100 / share. Others simply held on. And yet others waited for the inevitable correction, which came along with the rest of the market. The drop back to $30 range (which please note, was lower than the previous breakout level in early Feb) and the attendant larger number of interested investors (note consistently higher volume than 1999) fueled another brief surge between May and August. Significantly, the peak of this rise, was much lower than the earlier peak, a pattern that was reflective of many issues, and the NASDAQ in general. Declining peaks generally forebode weakening market conditions.
5. Another period of consolidation occurred from late July thru Sept, culminating in a momentary jump toward $50, but again failing to reach anywhere near the prior peak's level.
6. The most recent surge, in mid-October (coinciding with earnings, and LonWorld), was again lower yet than the prior peak.
7. The last low near $20 is also significantly lower than the prior low.
8. The pattern is one of lower highs, and lower lows � a declining cascade. This is certainly reflective of the general market sentiment, but specifically is reflective of investor sentiment regarding ELON. We can accurately say that price activity has mirrored declining investor interest and expectations. Therefore investors are only willing to pay progressively lower prices, and to sell at lower "peaks", not trusting that this investment will continue to appreciate. In addition, many who purchased anywhere above the current levels over the past 10 months, are either taking a tax loss, or have become disheartened with their own progressively lowered price expectations.
9. The last time that the price slumped, investors became interested at $20, and bought that level in volume. Market conditions, and earnings prospects have changed somewhat since then, though clearly the reigning confusion about near term economic growth (and that other thing�. that election stuff) will continue to influence short term investments.
10. The question, simply put, is "will it hold support here?" The considerations are primarily twofold. Ignoring for the moment all election hype and prospects � it is not farfetched to see a continued slide � back to the lows of January. I doubt whether anyone would anticipate price falling further than that. So that represents an absolute bottom, I should think. At some point, all the factors which determine market sentiment will congeal into consensus resulting in "price attractiveness" of a significantly widespread magnitude to stabilize the price, and prevent further decline.
11. The "second" consideration is that, in fact the market sentiment reflects that "price attractiveness" right here at roughly $20.
These two considerations allow for a determinable investor strategy. Again, ignoring (for discussion) questions of a fundamental nature, and focusing only on the "chart", the small time investor (like us) can think long-term and commit at this level, knowing accurately what the "downside" risk is here. This is of great advantage to know, as all transactions are really simply purchases of a cost-benefit ratio. The closer you can "predict" the current and potential "cost", the less risk. Or, for the trader, who wishes to wait for the absolute bottom � wait for the next indicator of further resistance or weakening. If price does break this support level, then we will likely see a bottom between $12 �13. Of course, with the volatility, politics, earnings concerns and suspicion of "near-bottom" conditions, the opportunities may be fleeting or sustained. But, I sure wouldn't short it here!
Now, was that a long-winded treatise about "T-A" ? Or just "common sense"?
Always striving for a bit o'objectivity even if not succeeding,
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