Like a hot air balloon, shares of Digital World Acquisition (NASDAQ:DWAC) have floated higher. But similar to a politician full of steamy bluster, don’t expect the ride in DWAC stock to last. In fact, the day of its descent may have already arrived.
Today, let’s look at shares both off and on the price chart — and why buying into DWAC stock is a train wreck of an idea.
Here’s what you should know about Digital World Acquisition and its shares.
DWAC Stock: All Aboard?
The Trump Train. If you’re on it, you’re hoping for a trip back to the White House after former President Donald Trump’s chance at a second term was unsuccessful. To walk the aisle somewhat fairly between bulls and bears, though, it’s true that if you’re in shares of DWAC, the rallying call has been a loud and present danger.
For this special purpose acquisition company (SPAC) set to merge with Trump Media & Technology Group, the year 2022 has been a great one. In January alone, shares soared 42%. Now, the stock is up around 9% so far this month, although it has trimmed some fat after being up by as much as 33% at its February peak. What’s more, the ballooning share price has happened in the face of a broader market coming to terms with items like inflation and growing tension between Russia and Ukraine.
Still, there’s some reason behind the madness. Well, maybe.
DWAC will spawn shares of TMTG stock this year and has mostly been hyped by bulls due to its Truth Social platform. The conservative social media platform takes aim at Twitter (NYSE:TWTR) and Meta Platforms’ (NASDAQ:FB) Facebook, which banned the former President in early 2021.
Of course, the ardent supporters of this stock are known to march to the beat of their own drummer. However, a puncture in DWAC stock’s magnificent rally is already warning of an aborted mission.
The Weekly Price Chart
Source: Charts by TradingView
Right now, it appears that a “sell the news” situation has begun to take hold of DWAC stock.
This observation is supported by a topping pattern starting to play out in front of the anticipated Feb. 21 launch of Truth Social. More importantly, on the provided daily chart of DWAC stock, a double top has been confirmed against Fibonacci resistance from the 38% and 50% retracement levels. Plus, its stochastics have also bearishly crossed after striking overbought levels at $80.
Sure, it may be a bit too soon to label what we’re seeing as a “sell the news” signal. Nevertheless, it’s bearish in of itself.
Lastly, though, this year’s bid in shares is inexorably tied to Reddit’s meme-loving bulls and their own track record. They like to run from the scene of the crime. So, the bottom line? Whether or not you believe Truth Social will find its audience, the downside risk of DWAC as an investment looks measurable compared to its upside prospects.
On the date of publication, Chris Tyler did not hold (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.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.