BALTIMORE ( Stockpickr) -- Investors got a chance to see a large-scale short squeeze in play on Monday as traders who were short the Euro were forced to cover their positions. The currency climbed earlier this week thanks to eased concerns about Greece's debt outlook, a situation that threatened to tarnish the EU's formerly spotless economic track record. But short squeezes aren't relegated to FX traders. This week, we'll take a look at highly shorted companies that generate significant free cash flow.

But first, more on short squeezes: A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing share price to skyrocket. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which estimates 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.

Each week, I create a portfolio of stocks with high short interest ratios and the catalysts to trigger a squeeze. Here's a look at this week's potential plays.

AmeriCredit ( ACF) is an auto finance company that buys auto finance contracts from its network of new and used car dealers. As such, the company hasn't been a stranger to bearish sentiment in the last couple of years, but a potential turnaround in the auto finance industry could spur shares on in the next few weeks as earnings time starts to creep up again. ACF's current short interest ratio sits at 11.6, which means that it would take short-sellers more than two weeks to cover their positions under current volume levels.

AmeriCredit has been repositioning its loan portfolio of late, diverging from the high-margin, high-risk subprime loans it once carried, and instead focusing on customers who present better credit risks to shareholders. That strategy appears to be paying off. ACF swung to profitability in 2009, making its way to double-digit net margins and significant free cash flow numbers in its latest quarter. Shares have already made a 26% jump year-to-date, and the company's 95% institutional ownership is banking on even bigger returns for 2010.

Among those institutional investors is Bruce Berkowitz's Fairholme Fund (FAIRX), a $14.4 billion fund that holds Morningstar's coveted five-star rating. Among Fairholme's other positions are Sears ( SHLD) and WellPoint ( WLP).

Another potential short squeeze in the auto industry is Group 1 Automotive ( GPI), an $806 million car dealer that owns 98 dealerships and 24 collision centers in the U.S. and the U.K. Group 1 benefits from the same macro story that AmeriCredit is benefiting from right now -- increased car sales volume -- but the company's ambitious expansion into Europe presents its greatest growth opportunities.

A bearish view on auto sales over the past couple of years has scored Group 1 a short ratio above 10 -- and still-thin margins haven't helped to shake out bets against this stock. But improving fundamentals and a relatively liquid balance sheet mean that this dealer is well-positioned to move vehicles right now. $13.60 per share in free cash flow doesn't hurt either. With first-quarter 2010 earnings just a month away, this auto dealer should have ample opportunity to impress Wall Street in April.

Industrial cable and wire distributor Anixter International ( AXE) has been just barely underperforming the broad market in 2010, but that trend could soon change if the company can deliver decent fundamental performance in its next quarter. As of right now, Anixter's short interest ratio sits at 10.4.

Debt and commodity risks remain the biggest black clouds on the horizon for Anixter right now, but with limited competition, a recession resistant product, and improving financial numbers, investors should warm up to the firm as the year progresses. While a debt-induced liquidity shortage is a bit of a concern for the company right now, $13 in free cash flow considerably widens its turnover numbers and quells doubts. Still, black clouds are necessary for a strong short squeeze, so solid results should mean even bigger gains for investors who are currently long shares.

One fund that's hoping for just that scenario is the Ariel Fund (ARGFX), which also owns stakes in Gannett ( GCI) and Tiffany ( TIF).

For the rest of this week's short-squeeze opportunities, including Integrys Energy ( TEG) and Toronto-Dominion Bank ( TD), check out the Cash Generating Short-Squeeze portfolio at Stockpickr.

And to find short-squeeze plays of your own, be sure to check out the Stockpickr Answers community for insights and investment ideas.

-- Written by Jonas Elmerraji in Baltimore.
Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on