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 = BOOM
The #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 History
We 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.
DWAC'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 DWAC
But 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 Stress
According 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 at $85."
We Are Seeing a Lot of Fake News
As DWAC took, off mobile cloud software company Phunware (PHUN) started jumping.
Late Thursday, it was trading in the $1.00 to $1.20 range.
And it hit a high of $24.04 Friday morning.
Why?
Because people were chattering that PHUN would provide software for Truth Social. Is that true? It's hard to say, but the proof is in the pudding and people bought the story.
Interestingly, we're seeing people float all kinds of rumors about particular companies working with the new Trump venture.
Take EXTREME CAUTION - there's a 99.9999% chance you are looking at fake news.
We Could See a Monday Morning Panic
We're writing this on Saturday morning. And odds are, trades panic Monday morning.
Why?
Because DWAC dropped after hours Friday:
Now, come Monday, we could see a selling panic... or a buying panic.
Because if people bought at $90+ looking for a rebound, they may freak if they see DWAC in the red early Monday. They may just dump and life to fight another day.
On the other hand... what if the #wallstreetbets crowd decides it's dip buying time? What if they remember GameStop at $483 and think DWAC could be next?
At the risk of stating the obvious... ANYTHING CAN HAPPEN.
Be careful out there...
Did You Trade DWAC?
Let us know how it worked out in the comments below... and make sure you join our newsletter!
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