DWAC: 8 Things You Need to Know About This Meme Stock Monster
What was the biggest story in the stock market this week? Tesla’s (TSLA) big earnings beat? Intel’s (INTC) giant miss? Evergrande defaulting on debt payments? inflation? The broken global supply chain? NO. The biggest story in the market was… DWAC. Yes… Digital World Acquisition (DWAC), which became the biggest meme stock on planet Earth. Here’s what you need to know:Trump + SPAC + #wallstreetbets = BOOMThe #memestock boom began in early 2021 when traders on Reddit and other social platforms started piling into a small number of story-based stocks like AMC (AMC) and GameStop (GME). Look at this long-term monthly chart of GameStop:In December 2007 before the housing crash, GameStop hit a then record high of $63.77. The video game retail business was BOOMING thanks to the emergence of Halo, Call of Duty, and Guitar Hero. (ain’t that a blast from the past? But thanks to #wallstreetbets and the meme stock boom, GameStop hit $483 in early 2021 — while the business was clearly in decline. The meme stock universe is always hungry for hot, crazy, fast-moving stocks, especially when there’s some kind of populist or antiestablishment theme. These people do not want to hear about fundamentals and market caps and enterprise value and earnings. These traders want to strap themselves to a rocket and make fast cash, especially when there’s a chance to go against the Wall Street establishment. Now let’s tie in DWAC. On Wednesday night, former President Donald Trump announced he formed a new company called Trump Media & Technology Group (TMTG) which would merge with the SPAC Digital World Acquisition Company, which trades under the ticker DWAC. And just like that, a meme stock was born. What made DWAC a meme stock? 3 things: 1) DWAC/TMTG’s business model, the centerpiece of which is a platform called “Truth Social,” was mocked. Mostly for claiming Truth Social would compete with Facebook (FB) and Netflix (NFLX). DWAC also has an unconventional leadership team, including CEO Patrick Orlando, who operates another SPAC called Yunhong International (ZGYH)… which operates out of Wuhan, China of all places. Remember, the #wallstreetbets community reflexively supports what Wall Street hates. 2) DWAC is a SPAC, which #memestock fans love because they can run so fast. 3) President Trump brought a real story and maximum emotion to the equation. Regardless of how you feel about President Trump, we can all agree on two things: he is a magnet for attention, and he still has a lot of fans that automatically like what his critics attack. This created an absolutely EXPLOSIVE meme stock situation. So let’s look at what happened.DWAC Had Perhaps the Most Shocking Stock Explosion in HistoryWe can’t reliable claim this the single biggest explosion in a stock ever, but it’s got to be pretty darn close. Let’s look at DWAC’s daily trading volume last week.DayVolume Closing Price High Low Monday 10/18 1,100 $9.97 $9.95 $9.95 Tuesday 10/19 49,900 $10.01 $10.01 $9.95 Wednesday 10/20 697,900 $9.96 $10.04 $9.95 Thursday 10/21 498,782,500 $45.50 $52.0 $12.62Friday 10/22 131,612,900 $94.20 $175.00 $67.96DWAC’s volume Monday was 1,100 shares. And on Thursday, it was 498,782,500. That means the volume increased by 453,437% in 4 days! But you want to know what’s really interesting? Check this out…There May Have Been Some Funny Business Going on…The DWAC-Trump announcement hit Wednesday after the close. Reuters covered it in a story at 10:08 p.m. that night. Yet… volume on DWAC had mysteriously picked up in the days ahead of the release. DWAC’s volume went from 1,100 Monday to 49,900 Tuesday to 697,900 Wednesday before the news came out. How does an unknown SPAC see a nearly 700-fold increase in volume from Monday to Wednesday? Did somebody know something? Yet…There Was PLENTY of Time to Get in DWACBut even with potential funny business going on, there was plenty of time to get In DWAC. The story was buzzing on social media during the premarket Thursday. Here’s a 15 minute chart showing the early action:As you can see, volume started coming in around the $10 to $12 range between 7 am and the open. By that time, the DWAC story was all over Reddit, Twitter, StockTwits, Facebook, and Discord. It was also a heavy topic of discussion in T3’s own Virtual Trading Floor® rooms, where our room moderators called out ideas in DWAC and ancillary plays like Phunware (PHUN). (we’ll get to PHUN later in this story…) So you didn’t have to be Johnny on the spot. Heck, even if you waited until after the open, you could have easily gotten in under $15… and rode it to a close of $65.50.DWAC Was Halted Multiple Times, Causing Traders TREMENDOUS StressAccording to the SEC, “a U.S. stock exchange that lists a stock is required to issue a trading “pause” in a stock if the stock price moves up or down by 10% or more in a five-minute period. And since DWAC was moving so fast, it was halted multiple times on Thursday and Friday. This was tremendously stressful for traders, who were forced to wait 15 minutes or more to see what happened next. The stock would open and you could be up or down 20% in the blink of an eye… only to see it be halted again. Bid-ask spreads were also very wide, and with the stock jumping around so quickly, it was difficult to place limit orders with any semblance of precision. Many traders just entered market orders and hoped for the best. Some Traders Won Big… Others Got Left Holding the Bag…As you can see in this 15 minute chart, the DWAC boom started in the $10-$12 range Thursday morning. It went up all day Thursday…. then continued skyrocketing overnight. Now, here’s what’s REALLY crazy. On Friday morning, DWAC opened at $118.80 and hit $131.90 almost instantly. Then it was halted for 30 minutes… and reopened at $175 on the dot, which was the high of the day. Presumably, traders expected a GameStop like move and were taking a “whatever it takes” attitude towards getting in…. or out. One trader we spoke with said “I sold about 80% of my DWAC at $157 and then started panicking because they kept halting it and I wanted out. I eventually just put in a market order and sold the rest
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We have mixed markets to start the week as the narratives change a bit.. Inflation and higher rates still dominate the headlines but supply chain worries hit their peak last week. China and the Pandemic went on the back burner a few weeks ago. Earnings season is underway. Last week traders were rewarded for using my process to buy leaders and get risk back on when the 8/21 day gets reclaimed like SPX did at 4380. That was the day after a Red Dog Reversal buy signal last Wednesday. SPX futures are -20 which makes sense after such a big move. This gives traders a way to cover some hedges, and perhaps add back stocks they trimmed into last week’s strength. I’d think 4440-4445 holds to keep this new active long sequence intact. it can even see 4380 and still be fine – just a little choppier.Now let’s dig into some of the individual names I’m watching. The banks played their usual game. JPM’s report was sold, then they rallied each day after and XLF hit a high of $39.71. It could use a digestive day above $39.18. My JPM plan worked great. I bought $165 calls into weakness last Wednesday in the $1.50 area. I trimmed over half Friday to get smaller. Earnings are quickly approaching. NFLX is tomorrow and TSLA is Wednesday. The rest of F.A.N.G. reports next week. NFLX paid us a few times as it cleared the channel to see $646+. Then it took the week off. It has a decent looking bull flag. I might put on a call spread for Tuesdays’ earnings for a move above the recent highs. I’ll post it if I do today. TSLA has been a great relative strength play. It held the 8 day while the SPX was hitting the 100 day. Then it cleared the $807 area and is above $850 this morning. Being away for my race helped me stay long. I’ll trim most into this earnings Wednesday. I don’t take stock into earnings. I might do an options play but I’m not sure yet. AAPL did not lead this last move but participated. They have an event today where they are expected to announce new MacBooks and a new generation of AirPods. See if there’s any surprises. It needs to hold the $143.50 area to stay constructive.Positions Disclosure as of 10/18/2021 at 8:08 a.m. ET
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