DWAC stock price: Trump’s Digital World could short squeeze soon

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Written on Jul 5, 2023

Reading time 3 minutes

Digital World Acquisition reached a settlement with the SEC.
The settlement could see the company complete its merger with Truth Social.
The stock’s volume and volatility point to a short squeeze.

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Digital World Acquisition (NASDAQ: DWAC) stock price has come under intense pressure in the past few months. The stock was trading at $12.65 on Monday, close to its all-time low of $12.36. It has dropped by over 19.8% this year and by over 90% from its highest point on record.

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DWAC stock price rose slightly in the pre-market session after the company settled with the Securities and Exchange Commission (SEC) in a long-running investigation.

If the settlement is approved, the SEC will issue a cease-and-desist order alleging that the company violated antifraud provisions. The settlement will then open the door for the company to merge with Truth Social, Trump’s social media company.

There are several risks to investing in DWAC. First, Truth Social is facing significant competition from other text-based companies. The biggest competitor is Twitter, which, under Elon Musk, has become a place for free speech. As a result, activity in the platform remains sharply higher.

The other competition is Threads, a new company by Meta Platforms that will launch on Thursday. Analysts believe that Threads can be a good competitor to Truth Social because of its global reach. Bluesky, founded by Jack Dorsey, is another Truth Social competitor. As a result, the industry is getting highly saturated.

Second, there are concerns about Truth Social’s appeal to advertisers who don’t like its association with Trump. A closer look at the platform shows that many big brands have avoided the company.

In most cases, brands don’t pay a close attention to companies like Truth Social as we saw with Twitter’s underperformance as a publicly traded company. Instead, they are spending in popular social media platforms like Snap, Instagram, and TikTok.

Finally, recent history is full of many SPAC companies that have imploded. Some of the most notable ones are Lordstown Motors and Virgin Orbit. Others like Faraday Future, Canoo, Bird, and Owlet are on their death watch.

DWAC stock price forecast

Digital World stock price is hovering near the lowest level on record. Its volume has almost dried up, with the three-month average volume standing at 183k vs over 37.21 million in outstanding shares. The Average True Range (ATR) has dropped to the lowest level on record, signaling that volatility has dried up.

Therefore, while the long-term outlook trend is bearish, it is relatively risky to short at this stage. As such, there is a possibility that the stock will have a short squeeze in the coming days. If this happens, the stock will likely rise to the next key resistance at $15.