As Digital World Acquisition Slips Below a Key Metric, Take Caution

  • DWAC stock is up an impressive 36% this year.
  • DWAC stock recently fell below its 50-day moving average, an important threshold.
  • It’s good for cynical reasons but caution is also prudent.
Someone is viewing the Truth Social app in an app store. TMTG and DWAC stock.

Source: Ink Drop / Shutterstock

Although I’ve discussed the topic ad nauseum across multiple platforms, the overwhelming reality of special purpose acquisition companies — especially post-business combination — is alarmingly simple. SPACs stink. They really do. So it’s curious that Digital World Acquisition Corp (NASDAQ:DWAC) has performed so well. You might say that DWAC stock should have no business being one of the top performers of this year.

Yet here we are. Since the first session of 2022, DWAC stock finds itself up 36%. It’s a remarkable figure when you consider that SPACs in general have underperformed the benchmark equities index. Because of their dilutive nature as they enter the public market via a backdoor initial public offering, many stakeholders have found themselves deeply disappointed.

That’s the opposite case with DWAC stock. Investors couldn’t be happier with their position. And in some sense, it’s quite possible that its most ardent shareholders are tied to DWAC not necessarily because of the business combination that will take Trump Media & Technology Group (and by association Truth Social) public.

Instead, owning DWAC stock is a “badge of honor” for certain stakeholders, according to a Bloomberg report. It’s no wonder, then, that DWAC has soared. Still, could this sensational phenomenon last?

DWAC Digital World Acquisition Corp $71.50

The First True Challenge to DWAC Stock

On the surface, it appears that DWAC stock is immune to any problems it faces. But before you start buying shares of the Trump SPAC, recent data suggests that the equity unit is meeting its first true challenge.

In recent sessions, DWAC now finds itself below its 50-day moving average. Used as a gauge to determine near-term market strength, this technical indicator has limitations for fresh securities.

For one thing, the 50 DMA’s partner in crime, the longer-term 200 DMA, is nonexistent, because not enough trading data exists. So without establishing a track record, it’s tough to make technical pronouncements for or against DWAC stock.

Nevertheless, the SPAC was trending nicely around or above its 50 DMA since December of last year until early in March when it dipped below. In recent trades, DWAC has swung higher. But despite the increased bullishness, it’s still (at time of this writing) below the aforementioned threshold.

Should DWAC fans worry? I wouldn’t say it’s time to hit the panic button. However, the inability to move higher above an established technical indicator represents a subtle yet conspicuous transition.

Enjoy the Ride but Watch the Driver

Over the last several weeks, I’ve been bullish on DWAC stock because of the largely unprecedented emotions that bolster the Trump movement. As the Bloomberg article above points out, the performance of DWAC has more to do with sentiment around Trump himself than anything else.

Therefore, it’s quite reasonable to believe that DWAC stock may succeed where other SPACs failed. The competition among blank-check firms is strictly about money. But with the Trump shell company, it’s not just about the money. Indeed, it might not even be about money at all.

As attractive as that case may be, I think it’s time to keep closer tabs on DWAC stock. Technically, it’s starting to show some loss of momentum. And ultimately, market forces have the final word.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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