With Donald Trump favorably in the news last week, Trump Media Stock rose 13% from $31 to $35. However, that good news was offset by three negative indicators. Explanations follow this graph of last week’s action, in 30-minute increments…
First, Monday’s high volume reversal
In Monday’s pre-market trading, the stock opened the week at $34, then quickly jumped to $54 on 1.5M shares, up 74% from Friday’s $31 close. During the rest of the pre-market trading, the stock drifted down to the mid-$40s. Regular trading opened at $46, then dropped to $41 in the first 30 minutes on heavy volume of 17.5M shares. The regular trading closed at under $40-1/2, up over 30% from Friday’s close. However, in the first hour of post-market trading, the stock dropped again, to $36 on 2.5M shares, cutting the day’s gain to 16%.
Second, failure to break through the interim barrier of $45.
This barrier was set when the stock was in its earlier selloff period. It had failed to rise through that barrier before, so this was another confirmation of that negative signal.
Third, failure to break through the major barrier of $35.
During the rest of the week, the stock traded in a narrow $36-$38 range. It then closed Friday at $35. As a result, it had failed again to break through that barrier.
Add those three negatives to the previous ones, and it means the selloff is still intact, as this graph shows…
The bottom line – Even popular stocks need desirable fundamentals
It’s widely believed that the Trump Media stock is highly valued because of Donald Trump’s involvement. That may be so, but if a stock price is primarily supported by popularity, it carries the risk that company operations will not rise to provide fundamental support. The risk is not necessarily that popularity will wane, but that the shareholder base will not expand.
Also, Trump Media has a situational risk ahead. On September 25, all the lockups will expire so that all shareholders finally will be able to sell. Because many shares were issued in payment for services or in lieu of cash debt payoffs, the popularity rationale, alone, may not be strong enough to prevent selling by those shareholders.
Therefore, the coming second quarter earnings report (likely in August), accompanied by management’s commentary, will be especially important. Shareholders, other investors, and analysts will want to see what progress has been made and to hear about management’s growth strategies for Truth Social, as well as ideas for other products and services.
If the company results are a positive step forward and management’s outlook is attractive, the fundamental support will be strengthened. Otherwise, the selloff discussed above could continue.
