As discussed here, I have resurrected a scan that focuses on companies that are heavily shorted. The purpose is to find stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below and more information on short interest is here.

Companies included in today's scan are: LandAmerica Financial Group Inc (LFG), Enzon Pharmaceuticals Inc (ENZN), Cheniere Energy (LNG), Sanderson Farms (SAFM), MarineMax Inc (HZO), Asbury Automotive Group Inc (ABG), James River Coal Co (JRCC), OSI Pharmaceuticals (OSIP), Cox Radio (CXR), Theravance, Inc. (THRX), Digital River (DRIV), Travelzoo Inc (TZOO), Neurocrine Biosciences (NBIX), J.M. Smucker (SJM), AutoNation (AN), SonoSite (SONO), Riverbed Technology, Inc. (RVBD), Group 1 Automotive (GPI), Bare Escentuals, Inc. (BARE).

Continuing a pattern discussed last week, we find today's list considerably shorter than usual. This just reinforces the argument that heavily-shorted stocks aren't necessarily a safe haven during selloffs. I do believe there are uses for short interest as an indicator but to be truly effective, you need to understand its limitations.

Methodology - the query scans my database of companies which has some basic filters to eliminate penny stocks and those that don't trade frequently. The table above lists stocks that have at least 10 percent of their float sold short and then shows the top gainers from the previous trading day. This can be a useful tool for finding situations where stocks with heavy short interest have begun to move.