Stock chart showing rise after extended decline
Yes, Trump Media stock has serious negatives. The top issue is the expected selloff when the “great unlocking” (of currently unsalable shares) occurs this Friday (Sept. 20). Adding in the weak fundamentals and the stock price deterioration produces the popular view that DJT is a stock to avoid.
When weak, beat-up stocks take on a widely held negative view, the price naturally is down. While the price drop then is viewed as proof of a problem stock, its continued decline can also produce a contrarian investment opportunity.
Trump Media stock could be a contrarian buy
Note: This write-up follows my previous article, “Trump Media Stock (DJT)—Negative Outlook Has Improved”
There are seven reasons DJT might reverse course.
- First, DJT has fallen far. From over $50, it declined 70% to nearly $15 in less than four months
- Second, $15 is an important barrier, especially going into Friday’s expected selloff. Will the stock go lower still? Perhaps. But, if so, how would it behave below $15? The next major barrier is $9, which would be a 40% drop.
- Third, investors and the media have expected Donald Trump to sell some of his 115 million share position. This selling was viewed as a likely cause and catalyst for a major selloff. However, at his recent press conference, he said he will not sell.
- Fourth, the last two months have seen an unusually steady decline in the stock price along with a steady increase in the short interest. Those coincidental trends could mean any future price decline will depend on the newly unlocked shareholders being willing to sell at ever lower prices. Otherwise, as the short sellers buy to reduce their short positions, they will be introducing an upward price pressure.
- Fifth, having a Friday be the first day of unlocking makes for a potentially volatile stock movement because day traders and short-term speculators will be active. However, they do not like to carry positions over a weekend, when unexpected events and news can occur. Depending on the stock price movements, that desire could apply to the short sellers as well.
- Sixth, about those short sellers. They and other investors remember the 2021 “meme” investor actions with GameStop, AMC, and the like. The goal was to force short sellers to have to cover their shorts (AKA, buy) at ever higher prices. Could it happen to Trump Media? Yes, because the original shareholder base seems stable. With DJT labeled as a meme stock, the large non-insider shareholders could be willing to hold on, particularly if they see signs of the stock beginning to stabilize and strengthen.
- Seventh, Donald Trump, again. Trump Media’s “value” has the Trump brand as the number one item. Therefore, he is in a position to affect the stock price positively.
The bottom line – Do not count a down stock out
A fun movie script has the hero looking defeated, then staging a comeback. While Trump Media stock might not be a winner in the long run, it could have an upside interlude – a contrarian surprise.
