Home Investing Trump Media Stock (DJT) – A Meme Stock Plummet Can Be Hard To Stop

Trump Media Stock (DJT) – A Meme Stock Plummet Can Be Hard To Stop

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DJT’s rapid 300% runup on 1.3B share volume just met its match: The stout $50 barrier. As a meme stock, it is driven by social media popularity with a simple rationale: The Trump brand link to Donald Trump’s possible election win.

For DJT, the risk is that the rationale pushes the price up so fast and so far above the fundamental valuation that the bubble is assured of popping. Without fundamental support, investors (think speculators and day traders) rely on technical items like price barriers and price/volume action. Then, once the bubble pops, the action quickly changes to taking advantage of the volatile decline.

But couldn’t DJT break through the $50 barrier?

It “could,” but note the prior failed attempts in the graph. That history strengthens the barrier’s reputation. Also, importantly, $50 is a well-recognized technical and psychological barrier. Therefore, investors, speculators, day traders, and short sellers could already be altering their current strategies for a reversal.

A measure that makes the 300% gain risky

After all shares became unlocked on Sept. 20, the trading volume has ranged from high to very high to extremely high. This week’s enormous 390M share volume deserves the highest descriptor. For comparison, Trump Media stock has a “float” (non-insider owned shares) of 75M.

Four more issues could undermine the stock’s runup

Extremely high volume with a rapidly rising stock means there is a lot of short-term speculation going on. Therefore, a stock price stumble can quickly undermine the enthusiasm and cause the uptrend to reverse.

The exciting price/volume action put the company fundamentals in the backseat. Thus, the Trump brand is now the primary driver. The commentaries that link the presidential election prospects to the company have expanded that brand importance.

The presidential election polls show there is an apparent 50/50 probability that Donald Trump will win or not win. The high volume runup with this high degree of uncertainty could be reversed by a more balanced view.

Shortly after the election, the company’s 3rd quarter earnings report will be released. While the company’s press releases have described the details of getting Truth+ streaming up and running, a continuation of weak revenue and large losses could remind investors that the fundamental support of DJT is very low.

The bottom line: What goes up…

This is a basic truth of investing. When emotional excitement drives a stock up, it is ripe for a reversal. The cause could be anything – from a fundamental stumble, a technical negative, or simply exhaustion. Whatever it is, the result is …must come down.

And, finally…

Remember GameStop, the meme stock leader? The graph shows 30-minute movements over eleven days in early 2021.

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