Trump Media Stock (DJT) in danger of another short selling plunge

Trump Media’s anti-short selling campaign has unwittingly played into the hands of short sellers. After short sellers “covered” their shorts (ie bought stocks) in the $20s, they have been waiting for false claims of victory. It seems the time has come and the short sellers are stepping in again.

An apparently perfectly timed contrarian indicator: Barron’s (May 1, 6:16 am): “DJT stock still rising. Trump Media’s short selling campaign may be working”

Trump Media’s anti-short selling campaign is twofold: (1) Publicly vilify short sellers and (2) Tell Nasdaq and Congress to do something. The stock’s rapid rise from the low $20s to around $50 yesterday gave the appearance of success.

However, the campaign and stock rally have actually enabled Trump Media investors to experience and learn this basic truth: Both long buyers and short sellers help ensure proper pricing.

Blaming short sellers for selling a fundamentally weak stock is a lost cause. Defaming short sellers has been attempted many times in the past, but without success. Short sellers are not bad actors. They provide a check on overoptimism and overestimations. Their investment objective is simply the reverse of long (buy) investors: “sell high, buy low.” Therefore, they provide Wall Street and the capital markets with vital pricing reality.

But haven’t the actions chased away the short sellers?

No. Short sellers understood what was coming so they took their gains (buying to “cover” their shorts). However, they are not gone. Short sellers will return (have returned?) because Trump Media stock remains overpriced.

More than that, Trump Media now has a combination of other factors that present a high risk of another plunge. Here is the list:

• First, the fundamentals are significantly weakoffering only a paltry level of “real” support to the share price in the single digits
• Second, the 50% increase in common stock, in itself, lowers the price per share support by 1/3. These shares are currently being registered, so the official adjustments in pricing and valuations per stock is approaching
• Third, the registration for “resale” of the huge 204 million shares now issued. The majority of the shares are not tradable (in any form) until the SEC approves the registration. Today’s fewer outstanding shares will make room for both a larger increase in shares and the addition of various investors
• Fourth, “investors” must be in quotation marks because many shareholders come from having lent money to the company in the form of convertible debt. The “refunds” were forced conversions into common stock at the time of the merger. Will these new investor lenders stick around now that they have common stock? Probably not, especially after witnessing recent sales from $70 to the low-$20s
• Fifth: True irony – There were key supporters and companies who helped create and oversee the activities of the Digital World Acquisition Company from 2021 to early 2024, which has now been sued by Donald Trump for various reasons. They all disagree and have countersued. (That’s the reason for blocked shares – the lawsuits continue). So don’t be surprised if these shareholders are willing sellers
• Sixth, there are significant stakes that were acquired at prices below the $10 IPO price. This means that even if the share price falls below $10, they can still sell for a profit. Therefore, the $10 price level is likely to be only a temporary support barrier

The bottom line: Trump Media needs to grow quickly to meet the expectations of current shareholders

It is a real challenge given the company’s current situation.

Here is The Wall Street Journal see: “The former congressman in the hot seat at Trump’s Truth Social” (Bold is mine)

“Devin Nunes runs a small, money-losing, slow-growing social media business that just became public. The looming question: What if the app’s most important user – and biggest investor (Donald Trump) – want to sell?“

“The IPO gave Truth Social more than $200 million and may have saved it. The company had burned through the roughly $40 million in convertible notes it had raised to the point that limited its ability to grow. App downloads and web traffic were down. Other social networks popular with conservatives, including Parler and Gab, also struggled after Elon Musk bought X and prioritized free speech.”