Trump Media & Technology Group: Don’t Buy, Trade It (Technical Analysis Upgrade) (DJT)

BluIz60/iStock Editorial via Getty Images Thesis Summary Trump Media & Technology Group Corp. (NASDAQ:DJT) staged another impressive rally on Monday, June 24th, following news that the company could receive as much as $247 million from the exercise of its stock warrants. The market seems to have taken this as a bullish signal. In my last analysis on DJT, I laid out both the reasons one might want to invest in the company, but also the reasons one might want to short, and ultimately concluded that this was not a good investment. Over the long run, I don’t think DJT is worth owning. But although DJT is not a stock one would want to invest in, is it worth trading? It’s definitely not an easy one to trade. Shorting is expensive, and going long is a battle against gravity. And yet, I think it’s worth trying to analyze the technicals to find potential levels one could trade. Why the rally? DJT saw its stock price skyrocket over 20% on Monday, June 24th, and it could be linked to the fact that it will receive substantial funding from the exercise of its warrants, though it will also be dilutive. So, to start off, let’s quickly analyze this bit of news? What are warrants? And are they bullish or bearish? Stock warrants are options issued by a company that trades on an exchange and give investors the right (but not obligation) to purchase company stock at a specific price within a specified time period. Source: Corporate Financial Institute. Warrants are exercised if the stock price is above that offered by the warrant because this means the owner gets to buy the stock a below-market price. If the market price is below that of the warrant, though, they will not get exercised. Last Thursday, the SEC approved DJT’s registration statement, which not only paved the way for the company to issue extra shares, but also unlocked $40 million in restricted cash from its balance sheet. According to the most recent information, if all these warrants were exercised, this could add another $200 million to the balance sheet, for a total and much-needed cash injection of $240 million. When the S-1 (registration statement) was approved, the stock plummeted over 15%. This makes sense on the surface, since more warrants being exercised implies current shareholders will be diluted. However, the stock then began to rally on Friday, June 21st, as the company announced $69.4 million was raised from initial proceeds of exercised warrants. In this regard, while the exercise of stock warrants is dilutive, it does mean the company can raise much-needed cash. This is bullish to the extent that it means the company will at least be able to continue operations over the next year or two. Or, perhaps DJT began to rally for a myriad of other reasons. Ultimately, fundamentals and/or narratives don’t necessarily lead price, rather they follow it. As with the case of the warrants, one can often spin both a bullish or a bearish argument from a bit of news. Will DJT rally or plummet? (Technical Analysis) Following this bounce in DJT shares, is now a good time to short or go long? Let’s look at the chart to see if we can find some clues. DJT TA (Trendspider) Since January, DJT has been trading in a range between, roughly, $55 and $25. After rallying to $55 in January, the stock sold off, rallied again, got rejected at that same point and then began to sell off once more. The stock reached $33 by the end of March, and then squeezed up and above $50, going as high as $78. Following this, we sold off to $20, rallied back up to $50 and then sold-off again to $20 only to see another big move from there. With some aptly placed trades, one could have made a killing here. Now, as we bounce off the support level, we have now run into the 200 EMA, which is where we sit right now. In my opinion, this could be a decent place to go long. We can see that bullish RSI divergence and the 200 EMA will act as support. What I would like to see in the next couple of days, is some consolidation, kind of like we saw at the beginning of April. If we can rally a bit from here and retrace/consolidate, I’d go long. If instead we sell off now, then I’d be looking to find support at the green trend line, somewhere a little above $20. In terms of taking profit, or shorting, we’d have to wait for DJT to be back near the $50. I’d expect some initial resistance at the red trend line, just a little bit below $50. This would certainly be an attractive place to short, especially, if, like back in February, we can get another kind of double top. However, bear in mind shorting comes with its own risks. Depending on how you short, you may be a risk of losing over 100% of your investment, and the cost of shorting this stock, since many people want to, is quite elevated. Final Thoughts All in all, I don’t think Trump Media & Technology Group Corp. is a good long-term investment. Eventually, it is likely that the stock price will be capped by insider sales. Trump owns over 60% of DJT stock, and his lock-up period expires in September. This is why shorting, especially at the $50 level, could be very lucrative. I have laid out some analysis to trade this, but it’s not something I will personally be attempting.

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