By Roberto Pedone

WINDERMERE, Florida ( Stockpickr) -- Has the stock market finally put in a tradable bottom? It's very possible when you consider the big up day we had on Wednesday combined with the follow-through up day on Thursday. In the last two trading sessions, the Dow Jones Industrial Average has managed to bounce more than 300 points, and the S&P 500 has soared more than 40 points. This bullish action was ignited by some decent manufacturing data out of China and by some bullish growth out of Australia.

From a technical perspective, this rally was almost perfect for the bulls since it came at a time when the S&P 500 tested the key psychological level of 1040. That level has been an area that the market gods have defended three times with success in the last couple of weeks. Judging by the furious moves up in the markets the past two days, it's not a stretch of the imagination to consider that many bears were forced to cover short positions.

Some heavily shorted growth stocks such as ( PCLN), Chipotle Mexican Grill ( CMG) and Netflix ( NFLX) have seen big moves as a result.

If the market has at the least put in a tradable bottom for the time being, then it's probably time to seek out some short-squeeze candidates by looking at the most heavily shorted stocks that have a chance to really put the bears on the run.

What is a short squeeze? A short squeeze results when the price of a stock rises and investors who short-sold the stock rush to buy it to cover their short position. As the price of the stock increases, more short sellers feel driven to cover their positions. As these short sellers cover their positions the price of the stock skyrockets.

With this in mind, let's take a look at a number of stocks that could be setting up to experience some big short squeezes due to their extremely high short interest.

>>>Also see: Financial Short Squeezes for 2010

One stock that is heavily shorted by the bears is Sonic Solutions ( SNIC). This company is a developer of products and services that enable the creation, management and enjoyment of digital media content across a variety of technology platforms. Currently, the short interest sits at a whopping 46.2% of the tradable float of 23.50 million shares. The number of days of average share volume it would require to buy all of the shares that were sold short during the most recent reporting period is 18 for Sonic.

This stock formed a double-top chart pattern back in May at around $14 a share. Following that bearish pattern, the shorts came into this name and hammered it all the way down toward its recent lows around $6.76 a share. Market-players should watch for a break above $8.80 and $9.40 for confirmation that a major short squeeze is in the cards. If the stock can get above those levels, I think it can short squeeze very quickly up to $13 a share.

Another stock with a ridiculous short interest is Rubicon Technology ( RBCN - Get Report). This company is an electronic materials provider, which develops, manufactures and sells monocrystalline sapphire and other crystalline products for light-emitting diodes, radio frequency integrated circuits, blue laser diodes, optoelectronics and other optical applications.

The bears are heavily involved with this stock, with more than 54% of the tradable float of 17 million shares currently sold short. It would take nine days of average share volume to buy all of the Rubicon shares that were sold short during the most recent reporting period is nine

The bears have been on the wrong side of the trade in this stock, at least for 2010. Year-to-date, shares of Rubicon Technology are up nicely by 29%. On Aug. 6, Rubicon reported record sales growth of 37% after the company reported second-quarter revenue of $15.8 million, which easily topped Wall Street estimates of $14 million.

From a technical perspective, market players should watch for a break above $27 to $27.60 a share. If the stock can trade above those levels, it should trigger a very big short squeeze that could easily to this stock to $32.50 or $36 a share.

The bears are also currently gunning for Quality Systems ( QSII). This company is engaged in the development and marketing of healthcare information systems in the U.S. Right now the short interest for Quality Systems is a gigantic 33.5% of the tradable float of 17 million shares. It would take 29 days of average share volume to buy all of the shares of Quality Systems that were sold short during the most recent reporting period.

The bears have been pounding this stock, dropping it from its May highs of $68.50 to its August lows of 52.50. However, now the stock looks ready to break above some previous resistance at around $60 to $60.50 a share. If the stock can bust above those levels, it could easily short squeeze all the way up towards $63 to $65 in a heartbeat. Keep in mind that technically, it looks like the stock has broken its recent downtrend with shares now trading back above the 50-day moving average.

>>>Also see: Top-Rated Health Care Technology Stocks

One final stock to consider for a big short-squeeze candidate is PetMed Express ( PETS - Get Report). This company markets prescription and nonprescription pet medications, and other health products for dogs, cats, and horses direct to the consumer. Currently the short interest for PetMed Express sits at around 32% of the tradable float of 19 million shares. The number of days of average share volume it would require to buy all of the shares that were sold short during the most recent reporting period is 32 for PetMed Express.

The bears have been in control of this stock since April when shares were changing hands at around $24.32 at the highs. The shorts dropped this stock all the way down to $15 a share in July, but now the stock looks to be finding support right at that level. Look for a big short squeeze rally if the stock can break above some previous overhead resistance at around $16.83 a share. A move above that level should squeeze this stock up towards $18 to $20 a share.

>>>Also see: Top-Rated Internet Catalog and Retail Stocks

To see more short squeeze candidates such as Fuel Systems Solutions ( FSYS), athenahealth ( ATHN) and Ebix ( EIBX), check out the Heavily Shorted Stock Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.


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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to and maintains the website, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.

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