Live Markets: Digimarc among top 'squeeze' targets -S3 Partners

Cabaletta Bio

18/05/2023 18:16

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      Nasdaq up ~0.9%, S&P 500 gains ~0.3%, DJI down ~0.4%
    

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      Tech leads S&P 500 sector gainers; real estate weakest
group
    

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      Dollar up; gold, crude, bitcoin decline
    

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      U.S. 10-Year Treasury yield rises to ~3.65%
    

  
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    DIGIMARC AMONG TOP 'SQUEEZE' TARGETS -S3 PARTNERS (1309
EDT/1709 GMT)
    Software company Digimarc Corp  DMRC.O  is topping the list
of most "squeezable" U.S. stocks compiled by S3 Partners on
Wednesday 
    Short sellers have lost $34.8 million in Digimarc in 30-day
mark-to-market losses as per S3 data, and down 64.19% on an
average short interest of $85.7 million. 
    The current short interest of more than $85 million is
roughly 19.9% of the company's free float.
    Digimarc shares gained 32% on May 11 after the company
announced a $30 million contract, which created a significant
short squeeze in the stock, according to Ihor Dusaniwsky,
managing director of predictive analytics at S3 Partners.
    Shorting Digimarc shares were a profitable trade from
2021-2022 with short sellers netting around $56.5 million in
two-year mark-to-market profits on an average short interest of
$63 million, however this year they have logged $32.4 million 
of year-to-date mark-to-market losses 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," said Dusaniwsky.
    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, he adds.
    Digimarc shares hit an over one-year high in intraday
trading on Thursday.
  Here is a list of stocks with over $50 million of short
interest compiled by S3 Partners:
 Name                      Market              Short Interest
                           Capitalization      
 Digimarc Corp                $625,438,400.50     $85,731,938 
 Cabaletta Bio                $404,175,269.47   $51,536,705.00
 Celsius Holdings Inc      $10,160,747,076.32  $1,192,328,529 
 Zentalis Pharmaceuticals   $1,584,489,231.36    $259,953,438 
 Inc                                           
 AppLovin Corp              $8,904,191,798.95    $356,574,184 
 Sana Biotechnology Inc     $1,405,616,928.96    $224,966,746 
 MicroVision Inc              $547,215,357.30    $146,631,592 
 Upstart Holdings Inc       $1,789,827,085.05    $459,714,738 
 Fisker Inc                 $2,113,615,379.20    $441,750,977 
 SpringWorks Therapeutics   $1,748,769,988.20    $301,316,730 
 Inc                                           
 Cassava Sciences Inc       $1,056,678,199.85  $241,527,673.00
 EHang Holdings Ltd           $692,097,477.00    $105,800,628 
 
    (Shashwat Chauhan)
     *****
        
    
    COMMERCIAL REAL ESTATE MAY BE NEXT RISK FOR BANKS (1209
EDT/1609 GMT)
    Bank stocks have stabilized recently on hopes that the worst
stresses from the regional banking crisis are over. But a
deteriorating picture in commercial real estate may pose a fresh
risk, according to R. Christopher Whalen, chairman of Whalen
Global Advisors. 
    Commercial real estate is caught in a deteriorating loop as
falling rents and higher rates pressure valuations and
capitalization rates, the ratio between the annual rental income
produced by a real estate asset to its current market value.
    Whalen gives an example of a building that in 2020 had $1
million in net operating income (NOI) and a capitalization rate
of 4%, leading it to be valued at $25 million. But if in 2023
the NOI falls to $500,000 due to lease concessions to tenants,
the value of the building is cut in half to $12.5 million at a
4% cap rate.
    And “what if investors now want a higher yield? At an 8% cap
rate, the value of the building with the $500,000 NOI falls to
$6.25 million. This is precisely the calculus that is leading to
some building sales well below the published valuations of only
several years ago.”
    When the value of the building is cut in half, the mortgage
holder will want to see more equity to bring the loan back to
50% loan to value (LTV). “But if the rent roll is falling and
the “owner” of the building already knows that NOI is likely
going to fall further, the incentive is compelling to hand the
lender the keys and walk away,” Whalen said.
    Whalen say that unless rates fall substantially, many
commercial buildings in urban areas may face foreclosure, adding
that “the Fed's 5.5% increase in short-term interest rates has
thrown the pricing for trillions of dollars in real estate into
disarray.”
    "We have a hard time justifying a long position in bank
stocks and other equity exposures in real estate. We expect to
see credit losses for banks rise well-above long-term average
rates and losses on commercial real estate generally setting new
records,” he concludes.
    
    (Karen Brettell)
     *****


    THURSDAY DATA BUFFET: JOBLESS CLAIMS, HOME SALES, PHILLY
FED, LEADING INDICATORS (1150 EDT/1550 GMT)
    Market participants were served up a wide variety of
indicators to choose from, which offered evidence of economic
softness or resiliency, depending on which flavor they chose.   
    Starting with the labor market, the number of U.S. workers
filling out first-time applications for unemployment checks
 USJOB=ECI  eased by 8.3% last week to 242,000, or 12,000 shy of
consensus, according to the Labor Department.
    While initial jobless claims have been above the 200,000
mark since late January, the rising trend appears to have
stalled with the four-week moving average losing its upward
momentum. This suggests that the spiking layoff announcements in
recent months have yet to have yet to translate to longer lines
at the unemployment office. 
    In normal times that would be good news, but it also could
mean that the Fed could keep restrictive interest rates in place
for longer than many would like or expect.
    "Leading indicators of the job market like jobless claims
that were sending warning signals a few months ago have improved
in recent weeks," writes Bill Adams, chief economist at Comerica
Bank. "The job market is clearly less overheated than a year
ago, but it is still extremely tight, with April’s 3.4%
unemployment rate a half-century low." 
    "The Fed will more likely than not hold its policy rate
unchanged at the June decision," Adams adds. "But a hike in June
is a live possibility."
    Ongoing claims  USJOBN=ECI , reported on a one-week lag,
defied expectations by inching down to 1.799 million.
    
    
    Hopping over to the off-balance housing market, the sales of
pre-owned U.S. homes fell by 3.4% in April to 4.28 million units
at a seasonally adjusted annualized rate (SAAR).
    The National Association of Realtors' (NAR) existing home
sales report  USEHS=ECI  also showed the number of pre-owned
homes on the market increased - at April's pace it would take
2.8 months to sell every home on the market, up from 2.6 months
in March.
    The existing home inventory drought as been a headwind for
sales.
    "Home sales are bouncing back and forth but remain above
recent cyclical lows," says Lawrence Yun, NAR's chief economist.
"The combination of job gains, limited inventory and fluctuating
mortgage rates over the last several months have created an
environment of push-pull housing demand."
    Indeed, last week's uptick in mortgage rates and the
consequential drop in home loan demand suggested that home
owners seem skittish about relinquishing mortgages at
comparatively advantageous rates.
    The drop also reflects homebuilding strength, as evidenced
by improving builder sentiment and solid single-home
construction and building permits data.
    
    
    Next, let's talk about manufacturing.
    Factory activity in the Atlantic region continues to
contract this month, albeit not as sharply as analysts
predicted.
    The Philadelphia Federal Reserve's Business index
 USPFDB=ECI  - otherwise known as the Philly Fed - landed at
-10.4, a significant improvement over April's grim -31.3 reading
and better than the -19.8 print analysts expected.
    But taken together with Monday's dismal Empire State report,
east coast factories are slowing down.
    A negative Philly Fed/Empire State number signifies
month-on-month contraction. 
    "Despite the rebound in the Philly Fed manufacturing survey
in May, the index still indicates that factory activity remains
subdued," says Gurleen Chadha, U.S. economist at Oxford
Economics. "The backdrop of tighter lending conditions and weak
global demand means manufacturing will remain weak over the rest
of the year."
    
    
    And finally, let's wrap this up with some forward-looking
data.
    The Conference Board's Leading Economic Index (LEI)
 USLEAD=ECI  fell by 0.6% in April, sticking the consensus
landing.
    The index, which aggregates ten disparate data series,
including jobless claims, the S&P 500, building permits and
Treasury yield spreads nonetheless showed a shallower drop than
the previous month's 1.2% slide.
    Even so, the LEI has now posted 13-straight consecutive
monthly declines.
    "Weaknesses among underlying components were widespread—but
less so than in March’s reading, which resulted in a smaller
decline," says Justyna Zabinska-La Monica. "The Conference Board
forecasts a contraction of economic activity starting in Q2
leading to a mild recession by mid-2023."
    
    
    (Stephen Culp)
     *****
    
    
    U.S. STOCKS MIXED EARLY AS DEBT-DEAL HOPES PERSIST (1010
EDT/1410 GMT)
    The main U.S. indexes are mixed early on Thursday as Cisco
shares are lower on slowing demand for its products, clouding
Walmart's strong annual forecast and optimism over a potential
deal to avoid a catastrophic debt default.
    Meanwhile, April existing home sales came in shy of the
estimate, and the April leading index change month-over-month
was in-line with expectations.
    The DJI  .DJI  is off modestly, while the Nasdaq  .IXIC  is
rising. The S&P 500  .SPX  is edging higher.
    A majority of S&P 500 sectors are lower with energy  .SPNY 
taking the biggest hit.
    However, thanks to strength in chips  .SOX  and FANGs
 .NYFANG , tech  .SPLRCT  is the leading sector gainer, and
underpinning the Nasdaq's early rise.
    Growth  .IGX  is slightly outperforming value  .IVX  on
Thursday, though value is still enjoying an edge for the week.
    Of note, the U.S. 10-Year Treasury yield  US10YT=RR  has
pushed to a four-week high at 3.64%.   
    Here is a snapshot of where markets stood around 40 minutes
into the trading day:
    
    
    (Terence Gabriel)
     *****
    
    
    NASDAQ COMPOSITE: ABOUT TO CLIMB OUT OF THE JACKSON
HOLE?(0902 EDT/1302 GMT)
    The Nasdaq Composite  .IXIC  has logged a fresh closing high
back to August 25, 2022, or the day before Fed-Chair Powell's
hawkish Jackson Hole speech which kicked off a sharp decline to
new lows. 
    Additionally, the tech-laden index is on track for a
fourth-straight weekly gain.
    And on debt-ceiling deal optimism, e-mini Nasdaq 100 futures
 NQcv1  are edging up in premarket trade on Thursday, suggesting
the Composite can attempt to build on its gains at the open:
    

    The IXIC ended Thursday at 12,500.566 and it now faces the
38.2% Fibonacci retracement of its March 2020-November 2021
advance, which should act as resistance, at 12,552.36. The
February-March 2022 lows should also now be hurdles in the
12,555-12,588 area.
    The August 25 close was at 12,639.265, or 1.1% above
Wednesday's close, and the August 26 intraday high, the day of
Fed-Chair Powell's hawkish Jackson Hole speech, was 12,655.836,
or 1.2% above Wednesday's close.
    The mid-August 2022 high was at 13,181.087.
    A band of previous highs, running from September of last
year through early May of this year (12,270 to 12,224), now
offers support.
    Additionally, since mid-March of this year, the rising
50-day moving average (DMA), which ended Wednesday at 11,967,
has contained IXIC weakness.
     
    (Terence Gabriel)
     *****
 
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
IXIC05182023    https://tmsnrt.rs/3BBe9Mf
earlytrade05182023    https://tmsnrt.rs/42NVCZe
Jobless claims    https://tmsnrt.rs/3Ipt3ZY
Existing home sales    https://tmsnrt.rs/3pRbADj
Philly Fed    https://tmsnrt.rs/3IpbU2m
Leading Economic Index    https://tmsnrt.rs/41MxYLq
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)