Today, Digital World Acquisitions (NASDAQ:DWAC) is one special purpose acquisition company (SPAC) that’s surging. Indeed, this SPAC has seen incredible momentum over the past two days. The fact that DWAC stock has surged more than 1,000% in just two days has made many investors a lot of money. However, today’s news of a DWAC halt by the Nasdaq has some investors wondering — What’s going on?
After all, why stop a particular stock from trading? If a stock has tremendous momentum in one direction, is it market manipulation to slow a particular move?
Trading halts can be confusing, so we’ll dive into that in a bit. However, let’s assess what’s driving this momentum in the first place.
As fellow InvestorPlace contributor Brenden Rearick recently pointed out, DWAC stock has become one of the hottest meme stocks of late. That’s because former President Donald Trump is seeking to use DWAC as the SPAC to bring his Truth Social platform public. This conservative social media platform is aimed at disrupting Big Tech. (It’s no surprise Big Tech is down today, at least partly due to this news.)
Given the following Trump has, it’s understandable to see interest in this SPAC surge. Accordingly, the levels of volatility this stock have seen have tripped the Nasdaq’s “volatility breakers.” When any stock moves too fast in a given direction, an exchange can halt trading to provide a breather for the markets to reassess their position.
Let’s dive into what trading halts are and why DWAC stock was halted today.
What’s Going on With the DWAC Halt Today?
The Securities and Exchange Commission (SEC) stipulates that exchanges must halt trading on securities that accelerate too rapidly in one direction in a very short amount of time. This is called a “Limit Up-Limit Down” halt.
Essentially, if a stock breaks above the upper or lower band of a specified percentage level relative to the preceding five-minute trading period, a stock is halted. These halts are in place for various reasons. However, among the key reasons stocks are halted for this purpose is to prevent flash crashes or anomalous spikes in a given stock.
These halts can last for varying periods of time but generally last around five minutes. Orders will be accepted during the trading halt but will not be completed until trading resumes. Accordingly, halts tend to provide pause for investors who don’t necessarily know where the stock will head when it opens. This allows for the “breather” the market is looking for to calm down volatility.
Today’s multiple halts with DWAC stock did appear to result in some degree of selloff. For any red-hot stock, a cooling off period can be a good thing. However, for speculators betting on moonshot bets, these halts can be aggravating.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.