- DJT stock sheds more than 18% on Monday, continues falling afterhours.
- Trump Media attempts to sell another 21.5 million DJT shares to funds operations.
- US Retail Sales came in too high for the market to expect lower interest rates.
- Israel continues saber-rattling against Iran's weekend strike.
Trump Media & Technology Group (DJT), the social media platform owned by former president and current presidential candidate Donald Trump, sank precipitously on Monday in a sign that retail sentiment regarding the meme stock may be short-lived.
DJT stock plunged 18.4% on Monday to $26.61 before losing nearly 3% more afterhours and trading below $26. Tensions in the Middle East between Israel and Iran coupled with higher than expected Retail Sales data dampened sentiment drastically. As US Treasury yields continued moving higher, the NASDAQ collapsed 1.8%, and the S&P 500 lost 1.2%.
Trump Media news
The instigating news was that Trump Media has filed paperwork to sell up to 21.5 million new shares of common stock, which would dilute existing shareholders tremendously.
Additionally, more than 146 million shares of common stock will soon be allowed to trade on the open market. Many of these shares consist of warrants that existed prior to the merger of Trump Media with the Digital World Acquisition Corp (DWAC) investment vehicle several weeks ago. This is causing DJT stock to descend lower since most observers think insiders will cash in on the stock as soon as they can. Trump, himself, needs funds to deal with his present legal bills.
Trump Media runs the former president’s social media hub Truth Social, but the platform only took in several million dollars in revenue in the whole of 2023. The bull idea on this stock is that the platform will get many more users as the 2024 presidential campaign heats up this summer between current president Joe Biden and Trump.
In the background of Monday’s disgruntlement over the DJT liquidity event, stocks continued to trade lower on the back of provocative talk from Israel that its aggression with Iran was not over. Several officials vowed to answer Iran’s barrage of drones and missiles over the weekend, which itself was a response to Israel’s earlier bombing of an Iranian consulate in Syria.
Higher US Retail Sales figures for March also worried some central bank watchers as it was yet more evidence that the economy is too strong for the Federal Reserve (Fed) to begin cutting interest rates this summer.
Meme stocks FAQs
Meme stocks are stocks favored by retail traders – but not by professional or institutional traders – that grow popular through its backers publishing memes on social media websites to win converts. Images or GIFs are typically used to transmit some type of excitement, committment or comedy regarding investment in the stock. These stocks normally are beaten down names that appear to have an uncertain or dour future based on falling sales figures or rising losses. Interest in these names normally comes from either belief in a turnaround story or its heavy short ratio.
Online investing forums like Reddit’s r/WallStreetBets are known to be breeding grounds for meme stocks. Normally, some small group of posters begin making memes of a stock they are buying. If the argument behind it is cogent or even just funny, the memes may provoke other retail investors to jump aboard. Interestingly, the merits of a stock are normally immaterial to it becoming a popular meme stock other than it being abandoned by the wider market and thus cheap. Stocks with high short ratios are usually likely to become meme stocks, because the nature of the argument for investing in the stock is that it can be the subject of a short squeeze.
A short squeeze is when investors swiftly buy up the shares of a heavily-shorted stock. Because the stock is heavily shorted, there is a dearth of available shares to purchase. This allows smaller volumes of buying to push the stock’s price up more easily. Since the share price suddenly rises, short-sellers need to purchase the stock to close out their short positions. This rapid buying and closing of short positions produces an unusually low level of supply that causes the price of the stock to rise rapidly. This type of short squeeze was the result of the first meme stock craze regarding GameStop.
Besides GameStop – the ur-meme stock – there have been a number of other meme stocks. Two of the most popular are AMC Entertainment and Bed Bath & Beyond. AMC CEO Adam Aron used the popularity of AMC shares among the retail class to effect a secondary offering that raised enough money to stave off bankruptcy during the 2020-2021 pandemic. Bed Bath & Beyond saw a flurry of volatile trading but eventually went bankrupt in April 2023.
Trump Media stock forecast
Trump Media stock broke directly through the $32 support level without noticing on Monday. This was somewhat surprising since bulls had rushed in late Friday to help DJT close above $32 late in the session.
The Relative Strength Index (RSI) is giving a reading of 35, so momentum has really thrown in the towel for this one. Some bulls might start nibbling soon enough however. If DJT can consolidate for a time in the mid-$20s, then expect another lunge at the $32 level.
DJT daily stock chart
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