Digital World Acquisition Is Shaping Up as a Disaster

Both politicians and the internet often promise far more than they can deliver. And as a stock at the intersection of these two, Digital World Acquisition (NASDAQ:DWAC) stock is on its way to disappointing its fervent base. DWAC stock has seen huge gains, but there may not be enough there to support these valuations. Let me explain.

Truth Social app logo seen on the smartphone and blurred TMTG logo on the laptop.

Source: mundissima / Shutterstock

Donald J. Trump. Everyone knows the name. At the Conservative Political Action Conference (CPAC) last week, Trump indicated a possible third run for president in 2024. Moreover 59% of CPAC attendees polled said they want Trump to be the Republican nominee. But one way to show that support here in 2022 is with a purchase of DWAC stock.

Digital World Acquisition is a special purpose acquisition company (SPAC) and its shares are set to reverse merge with Trump Media & Technology Group and its much publicized crown jewel TRUTH Social platform.

TRUTH Social of course is taking aim at what some see as liberal soapboxes in Twitter (NYSE:TWTR) and Meta Platform’s (NASDAQ:FB) Facebook, which took away Trump’s social media presence following 2021’s insurrection at the Capitol.

Be warned though. DWAC stock and TMTG’s crown jewel TRUTH Social might turn out to be fool’s gold.

For one, TMTG stock was recently valued at hefty $19 billion based on DWAC’s stock price. That’s no small potatoes. Renaissance Capital IPO strategist Matthew Kennedy notes he doesn’t know of any “pre-revenue tech/media companies valued so high.”

Then there’s the China angle in Digital World Acquisition. And it’s as equally rich as DWAC stock’s market price tag. DWAC is backed in part by Arc Group, a Shanghai-based investment firm that’s had a checkered regulatory history with the SEC.

What else? How about TRUTH Social’s public debut, which turned out to be a glitch-filled waiting list experience for many users. It doesn’t seem like the experience has become much more appealing in the interim.

The platform has been promised to be fully operational by the end of March.

DWAC Stock Weekly Price Chart

Digital World Acquisition (DWAC) rising bear flag set against Fibonacci resistance with bearish stochastics setup
Source: Charts by TradingView

Without prejudice, some of DWAC’s bulls have bucked this year’s broader market misgivings quite handsomely, with DWAC stock up a stunning 63% year to date. That puts it among the best-performing stocks in 2022 thus far.

What’s more, the stock has dazzled in the face of riskier SPACs which, by and large, are continuing to get hit in 2022. But don’t expect more of the same.

Unlike Trump’s other wall, the one being built on the DWAC stock price chart has the look of being impenetrable. And technically, that’s not good news for buyers of the SPAC.

As the illustrated daily chart of DWAC reveals, shares appear to be weakening in a bearish rising wedge pattern.

Built against a “wall” of resistance comprised of the 38% and 50% Fibonacci levels, shares have fallen out of a three-session topping pattern and are near pattern support following an overbought stochastics crossover.

Given the bearish indications and other challenges facing DWAC stock, it’s not a great time to spend your investment money on this campaign by bulls. And if you do want to take a chance on this SPAC, I’d stress using a limited-risk options spread and avoid giving DWAC the chance of becoming a total disaster in your portfolio.

On the date of publication, Chris Tyler 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 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.

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