Squeezing the Shorts: Nasdaq Stocks

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SAN FRANCISCO (TheStreet) -- TheStreet.com'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.