DraftKings Stock slammed after Hindenburg reveal short position

Summary:

DraftKings stock is the latest target of short-seller Hindenburg Research who claim DKNG profit from "black market' connections.

DraftKings stock is the latest target of short-seller Hindenburg Research who claim DKNG profit from “black market’ connections.

DraftKings (DKNG:NASDAQ) finished the day at $48.51, down $2.11 (-4.17%), after losing as much as -11.50% earlier in the session.

Hindenburg research yesterday revealed a short position in the sports-betting firm, criticizing its valuation and accusing the company of covering up illegal dealings.

The DraftKings stock price has risen almost 400% since going public in a 3-way SPAC deal involving Bulgarian-based SBTech in 2020. According to Hindeburg, SBTech has a history of shady business practices.

SBTech links to crime?

‘Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering, and organized crime.’

Based on conversations with multiple former employees, a review of SEC & international filings, and inspection of back-end infrastructure at illicit international gaming websites, we show that SBTech has a long and ongoing record of operating in black markets.

The short-seller predicted a lack of revenue, intense competition, and high marketing costs would weigh down the DraftKings stock price.

The full report can be read here.

DKNG Technical Outlook

The daily chart paints a negative picture for DFNG. Firstly, the price has broken below a supportive trend line from the May low. Furthermore, it is below all three major moving averages (50,100,200).

Crucially, the 50 DMA at $52.86 has crossed below the 100 DMA at $57.61. Furthermore, it is close to doing the same with the 200-day at $52.76.

A continuation of the bearish move would target the May low at $39.96 and, following that, the $34.90 low from October 2020.

That being said, DraftKings enjoys a cult following, and yesterday’s reversal and huge trading volume point to buying.

Therefore, a close above the 50-day moving average cancels the bearish call.