Trump related SPAC spec continues wild NASDAQ ride in Friday trading
WASHINGTON – Trading in the NASDAQ tech sector Thursday looked more like a Wild West shootout than it did a regular trading day on Wall Street. The reason? A Trump related SPAC spec. Namely, the virtually crazed action in an obscure SPAC spec named Digital World Acquisition Corp. Symbol on the NASDAQ: DWAC. The reason for that? Seemingly out of the blue, news dropped Thursday that Donald Trump would finally make good on his promise to shake up social media and beyond.
Trump proposed to do just that by merging his own fledgling startup with DWAC, a special purpose acquisition company (SPAC). That’s essentially the way an entity can help its stock go public without involving all the usual (and costly) IPO-SEC-prospectus-registration-roadshow protocols.
What’s a SPAC?
SPACs themselves are just fat moneybags sold in shares as a speculative future investment fund. SPACs go public olely for the purpose of providing a merger vehicle for interesting, usually speculative ventures. They’ve become a popular gamble, particularly during the Covid pandemic-turned-endemic. That’s remained true even though most SPAC mergers have ended up being notable flops after the initial merger excitement dies down.
But not so in this case. The fact that DWAC’s apparent merger partner – Donald Trump’s new media company – comes with its own backstory. One that’s so well known that it doesn’t bear repeating here. So take that, Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR).
CNBC drills down on the particulars of this Trump related SPAC spec.
“… the yet-to-be-launched Trump Media & Technology Group said its ‘mission is to create a rival to the liberal media consortium and fight back against the “Big Tech” companies of Silicon Valley, which have used their unilateral power to silence opposing voices in America.’”
This already sounded good to an awful lot of investors, from retail to hedge funds. Some had likely owned this SPAC before it took off faster than a SpaceX rocket.
DWAC shares suddenly blasted off from Thursday’s opening trade. They jumped from from prices around $10-12 per share to as high as $50 on heavy volume. They soon settled back to a “new normal” around $45 per share at the closing bell. That’s a good 400% jump on the day.
But Friday, that new normal didn’t last very long. In short bursts punctuated by trading halts, the stock skyrocketed even higher to around $130 per share. Once again on high volume. The increasingly restrictive CNBC site provides the following color.
“Trading in the stock was halted due to volatility multiple times in morning trading Friday. The SPAC, which trades under the ticker DWAC on the Nasdaq, skyrocketed 216% at one point and last traded up 150%.”
Since it’s stutter-step opening trade, DWAC quickly settled back to the $70 range before beginning its second run. As we write this at 12:40 p.m. ET, the shares continue to trade at around the $114 mark. Who knows where they’ll end their frantic trading week. When a stock gets this volatile and trades at such high volumes, predicting closing prices become an exercise in futility.
Who’s behind the big rally in this untested Trump related SPAC spec?
What’s spurring the big rally in DWAC shares besides likely enthusiastic buying likely coming from frustrated MAGA supporters on the retail side? CNBC thinks the positive action has already spread to the Reddit meme-trading community as well.
“Signs emerged that small-time retail investors could be behind the monstrous rally in the SPAC. On Thursday, DWAC the single most actively traded stock on Fidelity’s brokerage platform. Meanwhile, the ticker was among the most popular mentions on Reddit’s WallStreetBets. The SPAC was also a trending topic on Twitter, which indicated that DWAC could be having a meme stock moment like GameStop and AMC.
“One top post on the WallStreetBets message board Friday morning featured what appeared to be the user’s equity portfolio, touting daily gains of over $10,000 from betting on the SPAC. The post, which called the former president ‘Daddy Trump,’ quickly drew more than 800 comments.”
Spinoff effect caused by media hype
And there’s been a spinoff effect from the current media hype about DWAC. Investors wary of rapid stock ascents (which tend to be followed by equal and opposite declines) often look for alternative, potential ally stocks that might be involved in Trump’s new venture. Alternative in the sense of hitching a ride on the action without chasing the main target company. Again, CNBC…
“The Trump effect wasn’t limited to DWAC.
“Phunware, the advertising software startup involved with Trump’s 2020 reelection campaign, jumped in unison with DWAC. The stock last traded up a whopping 624% to $11.09 per share Friday, bringing its week-to-date rally to nearly 980%.”
We decided to hitch a small ride on this juggernaut Thursday when DWAC shares settled down a bit. They never did. So we took a chance and took three small nibbles at three different time intervals. At this point, we’ve been so well rewarded, we wish we’d acquired more.
Time for a Trump related SPAC spec in our own portfolios?
But stocks gone wild are hard to enter and exit at specific prices, which makes playing this game risky, particularly if you get in on the wrong side of the trade. This, added to Thursday’s frustrating trading halts, made it tough to be precise, particularly early in the day when prices were much cheaper.
But that said, we’ll ride what we have, and if DWAC really crashes, we might play with a few more shares. But for now, we consider this one an excellent Trump related SPAC spec. And that include “sister stocks” DWACW and DWACU.
The former, a cheaper investment per se, dollar-wise, is like a long-term option. It gives you the right to buy DWAC shares at a specific price and for a certain duration of time. But right now, since DWACW has neither an exercise price (the DWAC price you can trade the warrants in for actual shares) nor a specified time duration, this one’s a real gamble.
The latter – the one ending in “U” for “units” – bundles one DWAC share with one DWAC warrant. So this one trades at something of a hybrid price. This one could be a good deal, as the warrants you get are technically a free ride. Yet you are paying for a premium for these units. And once again, who knows what the warrants are worth.
About speculative investing: Don’t gamble with money you can’t afford to lose
We consider our small investment here as pure spec. The eventual Trump entity currently has no real numbers, no real track record, and only the slightest indication of the various directions this company might head. But that’s pretty much the same story with most speculative SPAC mergers. So it’s caveat emptor all the way. Obviously, we, ourselves, aren’t willing to bet the ranch on this one. But so far, the last 24 hours have been fun.
But maybe the next 24 hours could turn us suicidal. That’s how these things work. Your mileage may vary.
A small bet on Netflix escaping from a wokist internal revolt vs. Dave Chappelle’s “The Closer” special
On other fronts, we also bought a small position in Netflix shares (NASDAQ: NFLX) earlier this week when trans employees and company sympathizers threatened to walk off the job to protest the company’s latest Dave Chappelle comedy special, “The Closer.” The media hyped this threatened job action / protest beyond reason, speculating that over 1,000 employees would walk off the job.
We thought this was pure nonsense. But Netflix management’s PR efforts to contain this latest of today’s frequently occurring pro-trans threats and bullying actions bordered on the cowardly at times, likely scaring many investors. They promptly mass-dumped NFLX shares, causing a huge downside blow off. It was at that point that we jumped in to take a (very) small position, figuring this was another piece of overhyped PC nonsense that had already jumped the shark.
The subsequent “mass-walkout” proved to be a joke. Amateur live videos seemed to show that less than 50 disgruntled individuals took part in this protest. They were even countered by a few pro-Chappelle, pro-comedy counter-protestors, making the exercise downright funny at times. The stock almost instantly recovered its entire loss Thursday, and shares hit a new yearly high as well.
Politically, people are getting tired of hyper-political, hyper-militant LGBTQWTF tyrants. This statistical minority of US extremists – a tiny minority even in their own communities – has no right to set policy for anyone. But knuckling under to them is a mistake as it simply encourages more bullying and tyranny.
From an investment standpoint, when any extremely overdone reaction to a corporate event, including boycotts and / or protests, crushes a perfectly good, investible stock, it’s often smart to jump in when you see a bottom in these shares and pick some up. The result – often but not always – is a quick reversal that allows you to lock in a ridiculously high profit for only a day’s work. (Or maybe two.)
So have a good weekend. And enjoy the Dave Chappelle Netflix special before you can’t.