As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

Companies included in today's scan are: DSW Inc. (DSW), Zale Corp. (ZLC), Rambus Inc (RMBS), Jazz Pharmaceuticals Inc (JAZZ), Cracker Barrel Old Country Store Inc (CBRL), EnerNOC, Inc. (ENOC), Cooper Companies (COO), National Semiconductor Corp (NSM), CIENA Corp (CIEN), TCF Financial (TCB), Ethan Allen Interiors (ETH), Build-A-Bear Workshop, Inc. (BBW), Morgans Hotel Group Co. (MHGC), Pre-Paid Legal Services (PPD), InterMune (ITMN), Hertz Global Holdings, Inc. (HTZ), Moody's Corp. (MCO), Forest Oil (FST), First BanCorp. (FBP), Incyte Corp. (INCY), Mohawk Industries (MHK), Coldwater Creek (CWTR), P.F.Chang's China Bistro (PFCB), THQ (THQI), Insulet Corporation (PODD), Human Genome Sciences (HGSI).

Methodology - the query scans my database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. I use this as a tool for finding situations where stocks with heavy short interest have begun to move.

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