Joe, could be any number of problems.  Could be your encoder and transponder are not communicationg properly ( compatibility problem or wiring harness problems).  Could also be antenna problems.  Any avionics shops near by that you could have ramp test your aircraft?

Joe, what is the condition of your antenna.. Check it to make sure it is OK and that connections are good.. Sometimes the antennas will get deteriorated and cause this very problem.

"My altitude being reported ATC is bouncing up and down."

Your encoder reports attitude to the transponder using BCD (binary coded decimal) information that changes in 100 foot steps.
You can think of it as stair-step changes of 100 feet as you climb or descend.

Also if you changed out the encoder, then it could be a problem with the harness between the encoder and the transponder. A loose pin (poor crimp or loose solder connection) or intermittent connection at either end could really skew the BCD information and indicate large deviations of reported altitude. Check that harness at both ends thoroughly with an ohm meter or other continuity tester.

check the static system some ceesna products even have ports on the belly. If this is partially blocked or a line is seperating it would affect the encoder information