The markets have been mixed over the last thirty days with the S&P 500 and Russell 3000 down -0.76% and -0.90% respectively but the Nasdaq up +1.81%. It comes as no surprise that most of the most squeezable stocks in the market are Nasdaq names. Looking at stocks with over $50 million of short interest there are twelve stocks with 100.00/100.00 Squeeze Scores and recent mark-to-market losses, nine of which are in the Nasdaq.

Digimarc Corp (DGMC US) is the “squeeziest” of these stocks, with short sellers down -$34.8 million in thirty-day mark-to-market losses, down -64.19% on an average short interest of $85.7 million. In contrast, Over the last month the average U.S. short was up +2.60%.

DMRC is also a crowded short with a stock borrow fee of 1.20% fee versus the U.S. market average of 0.82%; S3 SI % Float of 16.84% versus the U.S. market average of 4.37% and 30-Day days to cover of 23.03 days versus the U.S. market average of 2.40 days.

Digimarc Corp, a global leader in product digitization and digital watermarks, recently announced $32 million 5-year Digimarc Illuminate contract for authenticity protection for gold, silver, platinum, and other precious metals as well as key building materials for commercial construction along with anti-counterfeiting and recycling technology in a national deposit-return system.

The contract announcement spurred a +56% move in DMRC’s stock price and created a significant short squeeze in the stock. Shorting DMRC shares were a profitable trade from 2021-2022 with short sellers up +$56.5 million in two-year mark-to-market profits, up +90% on an average short interest of $63 million. But this year we have seen -$32.4 million of year-to-date mark-to-market losses, a -61% return on an average short interest of $53 million.

With DMRC shorts giving back more than half the mark-to-market profits they earned in all of 2021 and 2022 in less than a week, we should see short covering in the stock as short sellers look to realize some of their earlier profits before they disappear into thin air.

We were seeing slight short selling ahead of the contract announcement with thirty-five thousand shares shorted, worth $1 million, over the last thirty days. The large recent mark-to-market losses should trigger a short squeeze in the stock and buy-to-covers will begin to hit the trading tape.

Recent trading volumes averaged 423 thousand shares/day, almost six times larger than DMRC’s year-to-date average of seventy-two thousand shares/day. Short covering of a significant portion of its nearly three million shares shorted should add to those trading volumes and help buoy DMRC’s stock price even higher.

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