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TheStreet Open House

Squeezing the Shorts: Nasdaq Stocks

Stock quotes in this article: MINI, NILE, AIG

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SAN FRANCISCO ( TheStreet) --'s Lauren Tara LaCapra declared Aug. 5 the " Day of the Short Squeeze," referring to the steep rise seen that day in American International Group (AIG), Fannie Mae (FNM) and Freddie Mac (FRE).

The recipe for this short squeeze? Simple: "Take a few zombie stocks that are heavily shorted, add a cup of fundamental improvements, a pinch of potentially rosy quarterly results and a dash of speculation, and you've got yourself a short-squeeze mess."

But a stock doesn't need to be a "zombie" -- a name bestowed on AIG, Fannie and Freddie due to the high level of government ownership in the companies -- to be a short-squeeze opportunity. A short squeeze takes place when a heavily shorted stock is quickly bought back in by the short-sellers, usually in response to a positive catalyst, driving the stock even higher. In the above example, the catalysts were the "fundamental improvements," the "potentially rosy quarterly results."

Thus, a high level of short interest in a stock could indicate that that stock is well-positioned for a short squeeze, should a positive catalyst occur. With that in mind, Stockpickr has reviewed the heavily shorted Nasdaq stocks and compiled a portfolio of those with high short ratios, where the short ratio measures the numbers of days it would take the short-sellers to cover their positions based on recent average daily volume.

For example, Nasdaq stock Mobile Mini (MINI), which provides portable storage products, has a high short ratio of 23.6. This means that it would take almost 24 days for the short-sellers to cover their positions. The company recently reported that earnings fell by more than 14%, in spite of the fact that revenue increased by 17%. The company has eliminated 30% of its workforce since December in order to reduce costs and improve net income. It has $873.3 million in total debt, with $14.8 million in cash.

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