Trump Media: Irrationality Rules With the Latest Meme and Cult Stock
Traditional traders are at a disadvantage when traditional metrics measures don't apply. Plus, how I'm playing small-caps as they look ready for an explosive move.
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Welcome to the end of the first quarter.
Feels strange saying that on March 28, but the holiday-shortened week combined with the 31st falling on a Sunday means we finish the first quarter today. Barring a disaster, it will be the fifth month of gains for the S&P 500 and the Nasdaq. The Dow and the Russell 2000 will be green for the fourth time in the past five months, a respectable showing on their parts.
Speaking of the Russell 2000, the iShares Russell 2000 IWM looks ready for an explosive move higher. I’ve posted the IWM chart every month, waiting for the big breakout, so no chart this time, as I don’t want to jinx myself. Unsteady, I will just say that a close above $210 opens the door to $220, which is my target for IWM within a few weeks of a close above $210. I would use a close below $204.50 as a stop for a long position.
It is fair to say the market is running on momentum combined with the acceptance of a soft landing. We are nearing the point where the biggest tech names are priced for perfection, so a broadening rally would alleviate what little concerns the market players likely hold.
With the elections this November, the FOMC will more likely move on rates this summer rather than closer to the election. I see this as a driving factor for the March rally and expect it to carry into April.
Speaking of elections, if you are looking for a rationale for why Trump Media & Technology Group DJT is doing what it’s doing, save yourself the trouble. You won’t find one. There is no valuation argument for buying the stock. I struggle to find a technical argument after the sharp reversal from earlier this week.
DJT is the latest meme and cult stock. If we looked forward a year, my guess is the stock will be below $20, but it might go to $200 before it reverses course or it may head straight down from here.
That’s the biggest challenge with meme stocks. It’s all irrational sentiment, so traditional traders are at a disadvantage. Traditional metrics don’t apply. Traditional views of risk versus reward don’t apply. Traditional price action doesn’t apply.
With GameStop GME and AMC Entertainment AMC essentially dead to meme stock traders, DJT has the opportunity to capture their attention, so be careful if you decide to short the irrationality. GME demonstrated just how powerful the little guy can be.
At the time of publication, Byrne had no positions in any securities mentioned.
