What has risen begins to fall sharply
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DJT surged 300% on volume of 1.3 billion shares, just hitting the sturdy $50 barrier. As a meme stock, it’s driven by social media popularity for a simple reason. The idea is that the Trump brand is tied to Donald Trump’s chances of winning the election.
The risk for DJT is that its rationale causes the price to rise so quickly that it far exceeds its fundamental valuation, which would almost certainly lead to the bubble bursting. Without fundamental support, investors (think speculators and day traders) rely on technical items such as price barriers and price/volume action. Then, once the bubble bursts, behavior quickly changes to take advantage of volatile declines.
DJT 30-minute movement including pre-market and post-market trading
John Tobey (StockCharts.com)
But could DJT fail to break the $50 barrier?
It’s “possible”, but notice the previous failed attempts in the graph. That history gives this barrier its reputation. Also, importantly, $50 is a well-known technical and psychological barrier. Therefore, investors, speculators, day traders, and short sellers may already be modifying their current strategies in preparation for a reversal.
Trump Media Stock – Daily trends since the beginning of the year
John Tobey (StockCharts.com)
Measures that put 300% profit at risk
Since all stocks were unlocked on September 20, trading volumes have ranged from high to very high to extremely high. The sheer volume of 390 million shares this week deserves the best word. For comparison, Trump Media stock’s “free float” (non-insider owned shares) is 75 million shares.
Four more stocks could derail stock price gains
Stock prices are rising rapidly and trading volumes are very high, meaning there is a lot of short-term speculation. Therefore, a weak stock price can quickly erode enthusiasm and reverse an upward trend.
Exciting price and volume movements have taken a backseat to company fundamentals. Therefore, the Trump brand is now the main driver. Commentary linking the company to the presidential election outlook further expanded the brand’s importance.
According to presidential election polls, the odds of Donald Trump winning are clearly 50-50. A mass surge with such a high degree of uncertainty could be reversed by a more balanced view.
The company’s third quarter earnings report is expected to be released shortly after the election. The company’s press release details the launch and operation of Truth+ Streaming, but if weak revenue and heavy losses continue, investors will be reminded that DJT’s fundamental support is very low. There is a possibility that
Conclusion: What goes up…
This is a fundamental truth of investing. When emotional excitement drives stock prices higher, it’s ripe for a reversal. The cause can be anything: a fundamental stumbling block, a technical disadvantage, or just plain fatigue. Whatever it is, the result is… bound to fall.
And finally…
Remember meme stock leader GameStop? The graph shows 30-minute movements over the first 11 days of 2021.
GameStop’s Early Meme Stock Rise and Fall (January 2021)
John Tobey (StockCharts.com)
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