There are four reasons DJT fell $20 (40%) last week:
First, the stout $50 barrier once again blocked DJT’s rise. With speculators and short sellers focused on technical indicators, the seemingly impenetrable $50 level was an easy read. Moreover, it dropped further, breaking through the next major barrier, $35.
Note: DJT has been labeled a meme stock which heightens risk and volatility. See my October 30 article for explanation: “Trump Media Stock (DJT) – A Meme Stock Plummet Can Be Hard To Stop”
Second, the rapid rise on extremely high trading volume means that many stock buyers were drawn into the run-up. Therefore, the fast decline both dashed easy money hopes and turned quick profits into speedy losses. Additionally, there are the shareholders who became unlocked on September 20 and chose to hold. This turnabout could be the reason they sold or will sell.
Third, an uptrend rationale was Donald Trump’s improving election poll readings. The Trump brand remains the key support for the high prices relative to the company’s fundamentals. Therefore, his rising chances of becoming president bolstered the brand support. However, there is the other reality that perhaps has become more important: The polling shows a 50/50 split between Kamala Harris and him. In other words, there is a 50% chance that he will not be elected.
Fourth, Wall Street knows that campaign promises have a way of being toned down, delayed, or set aside after the inauguration. That is when the White House-Senate-House governing structure brings in reality (through reordering preferences, negotiating, and compromising). Based on media reports, Wall Street is especially interested in reduced personal and company income taxes. The other promises, some of which are viewed negatively, are expected to be watered down, or dismissed.
So, what happens next?
DJT clearly reversed its uptrend last week. Not only did it fail to break $50, but it also fell back below the major $35 barrier it crossed the previous week. The inability to hold a breakthrough for two weeks is a negative sign. Therefore, the stock will likely be volatile on Monday and Tuesday (Nov. 4 and 5) without any real trend movement. Only after the election results are in, and then confirmed, can the Trump brand be evaluated for the Trump Media stock.
The bottom line: Fundamentals matter, even in meme stocks
In mid-November, Trump Media will report the 3rd quarter results. Will they continue to show weak revenues and sizeable negative earnings? What about the costs of setting up the streaming service versus the expected revenue growth? And what about the employee roster – Has it grown to match the increased services?
The answer to those questions and others, while not determining the dollar-value of the stock, will affect investors’ views and confidence in the company’s operation and outlook.