DJT stock analysis: Truth Social braces for a Black Swan event

The Trump Media & Technology (DJT) stock price suffered a harsh reversal this week as investors focused on the upcoming general election, which I believe will be a Black Swan event for the company. It dropped to $35 on Thursday, down by over 35% from its highest level this week.

The Black Swan event

Author Nicholas Taleb described a Black Swan event as a rare that has widespread consequences. The COVID-19 pandemic was a good example of that event.

According to Taleb, a Black Swan event is characterised by its extreme impact, rarity, and retrospective predictability.

A company or an asset can also have a similar event, and next week’s general election will be a good one for Trump Media & Technology, the parent company of Truth Social.

This election will determine whether Truth Social will continue operating in the future or not. If Donald Trump wins the election, the company will become a solid social media network since it will be his main means of communication when he is in the White House.

A victory will also lead to more revenue for the company as companies, countries, and other organisations seek favor with his administration. A good example of this is what happened in the last administration when lobbyists used to gather at his Washington hotel.

If he loses, however, and because of his age, he will likely lose relevance in the US. Besides, it will be his second presidential loss. He also lost the House of Representatives in 2018 and won by a small margin in the last midterm elections.

At the same time, if he loses the election, he will likely be exposed to more legal issues and a need for cash, which could push him to sell most of his stake. Besides, he will have nothing to lose at the time. 

Again, if he loses the election, many investors who bought the stock before that will likely sell their shares. That’s because Truth Social has some of the worst fundamentals in corporate America.

The election is also a Black Swan Event because of a concept known as buy the rumor, sell the news. This is a situation where investors buy an asset ahead of a key event and then exit the trade after it happens. 

This also happens as investors wait for the next catalyst since the one that they were anticipating has already happened. A good example of this is what happened after April’s Bitcoin halving. 

Trump's odds of winning are falling

The DJT stock price has crashed as data show that Trump’s odds of winning the presidency have slipped in the past few days.

Data by Polymarket shows that his odds have fallen from 67% earlier this week to 62%. Kamala Harris's odds have moved to 36%. 

Analysts caution that the election could move in either direction because official polls are extremely close. 

According to the New York Times, Harris leads the national average with just one point, meaning that it is within the margin of error.

Trump leads in Nevada, Pennsylvania, and Georgia by about 1%. He also leads in Georgia and Arizona by 2% and 3%, while Harris leads in Wisconsin and Michigan. 

Polls have been relatively unreliable in the past few months. For example, they did not predict Trump’s victory in 2020. They also predicted that Republicans would have a clean sweep in the last mid-term elections.

Read more: DJT and Phunware stocks have surged: buy or sell?

Trump Media has weak fundamentals

At the same time, the DJT stock will react to its weak fundamentals. In the first place, the website is not seeing any substantial traffic, according to data by SimilarWeb. It has just 13.48 million visitors in September, an 18.4% drop from the previous month.

In contrast, Reddit had over 3.42 billion visitors, while Rumble, a popular conservative-leaning YouTube alternative had over 60.6 million visitors. This is notable since Trump Media is valued at over $7 billion, while Rumble has a market cap of $1.7 billion. 

Unlike Truth Social, Rumble has a real utility and is making money as its revenues have moved from $3.4 million in 2019 to $81 million in 2023. Rumble has become more than a political platform since the network has expanded to other areas like sports and entertainment. 

DJT stock price analysis

DJT chart by TradingView

At this point, a technical analysis is not an ideal way to predict what will happen to the DJT stock price since its performance will depend on the outcome of the election. 

On the positive side, the Truth Social stock price remains above the 50-day and 100-day Exponential Moving Averages (EMA). It also seems like it is forming a double-top pattern, meaning that it could rebound and retest the important resistance point at $54.53, its highest point on Oct. 29.