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TheStreet Open House

Squeezing the Shorts: Late Earnings Plays

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By Jonas Elmerraji

BALTIMORE ( TheStreet) -- For investors who seek out short-squeeze opportunities, there's no time as important as earnings season. Earnings are one of the biggest catalysts a stock has to move higher, and good earnings can be just what investors need to start a squeeze. That's especially true at the tail end of earnings season as less-visible companies release their quarterly results to investors.

With smaller trading volumes in many of these stocks, the squeeze potential is magnified in a big way.

A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors. As more and more of the short investors buy shares to cover their positions, share prices skyrocket. Almost anything can trigger a short squeeze, including trumping earnings expectations, winning a lawsuit, unveiling a new product and even announcing a management change.

One of the best indicators of just how high a short-squeezed stock could go is the short-interest ratio, which divides shares short by average daily trading volume in order to get a ballpark estimate of the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed.

With this in mind, Stockpickr has created a portfolio of stocks this week with high short interest ratios and the catalysts to trigger a squeeze. Here's a look at this week's potential plays.

On Monday, Sears Holdings (SHLD) announced that management would be reporting its third-quarter 2009 results on Nov. 19. The company, which operates 3,918 Sears and Kmart stores in the U.S. and Canada, has taken a lot of investor scrutiny of late, with a short-interest ratio of 15.34.

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