Metric loss

As DWAC stock slips below a key metric, be cautious

  • DWAC stock is up 36% this year.
  • DWAC stock recently fell below its 50-day moving average, an important threshold.
  • This is fine for cynical reasons but caution is also prudent.

Source: Inkdrop / Shutterstock

Although I’ve broached the subject to the point of nausea on multiple platforms, the overwhelming reality of special purpose acquisition companies – especially after business combinations – is alarmingly simple. SPACs stink. They really do. So it’s curious that Digital World Acquisition Company (NASDAQ:DWAC) worked so well. You might say that DWAC stock is unlikely to be one of the best performers this year.

Yet here we are. Since the first session of 2022, DWAC stock is up 36%. This is a remarkable number considering that SPACs in general have underperformed the benchmark equity index. Because of their dilutive character as they enter the public market through a disguised IPO, many players have been deeply disappointed.

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

Instead, owning DWAC shares is a “Badge of Honor” for some stakeholders, according to a Bloomberg report. It’s no wonder, then, that DWAC has skyrocketed. Yet, could this sensational phenomenon last?

DWAC Digital World Acquisition Company $71.50

The first real challenge for DWAC stock

At first glance, it looks like the DWAC stock is immune to any issues it faces. But before you start buying Trump SPAC shares, recent data suggests the equity unit is facing its first real challenge.

Over the past few sessions, DWAC now finds itself below its 50-day moving average. Used as a gauge to determine short-term market strength, this technical indicator has limits for new stocks.

For one thing, the 50 DMA’s partner in crime, the longer-term 200 DMA, is non-existent, as there isn’t enough trade data. So without establishing a track record, it’s hard to technically say for or against DWAC action.

Nonetheless, the SPAC had been trading well around or above its 50 DMA since December last year until early March when it fell below. In recent trades, DWAC has tipped higher. But despite the increase in the uptrend, it is still (at the time of this writing) below the aforementioned threshold.

Should DWAC fans be worried? I wouldn’t say it’s time to press the panic button. However, the inability to move higher above an established technical indicator represents a subtle but obvious transition.

Enjoy the ride but watch the driver

Over the past few weeks, I’ve been bullish on DWAC stocks due to the largely unprecedented emotions fueling the Trump movement. As the Bloomberg As the article above points out, DWAC’s performance has more to do with the sentiment around Trump himself than anything else.

Therefore, it is quite reasonable to believe that the DWAC stock can succeed where other SPACs have failed. Competition among blank check companies is strictly about money. But with shell company Trump, it’s not all about the money. In fact, it might not even be about the money.

As enticing as this case may be, I think it’s time to keep an eye on the DWAC stock. Technically, it’s starting to show some loss of momentum. And ultimately, market forces have the last word.

As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to Publication guidelines.

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