Many investors believe that the almost 900-point rise in the stock market last Monday was due to short squeezes.

A short squeeze takes place when a stock's short-sellers scramble to cover their bearish positions when that stock moves sharply upward; their buying ends up pushing shares even higher. Short positions of stocks are measured by the short-squeeze ratio, which represents the number of days it would take for the short-sellers to cover their positions based on the recent daily volume of the stock.

With this in mind, Stockpickr has come up with a list of the top Dow stocks short-squeeze plays.

One of the stocks with a high short interest is General Motors (GM), with a short ratio of 4, which means that it would take the short-sellers four days to cover their positions based on recent daily volume. GM is still forging ahead to finish a deal with Cerberus Capital Management for the acquisition of the private equity group's stake in Chrysler, hoping to complete the transaction as soon as possible. The company recently generated negative earnings of $103 per share.

GM is owned by Clarium Capital, a global macro hedge fund company with more than $5 billion under management. In 2005, Clarium was honored as the global macro fund of the year by two magazines, MarHedge and Absolute Return. Clarium also owns Hewlett-Packard (HPQ), with a short ratio of 1; Procter & Gamble (PG), with a short ratio of 1.2; and Lowe's (LOW), which also have a short ratio of 1.2.

Another Dow stock, consumer products company Procter & Gamble (PG), has a short ratio of 2.79. The company's first-quarter profit increased by 9%, beating analysts' expectations. The company has a P/E of 17, a PEG of 1.43 and a yield of 2.8%.

Proctor is owned by the Blackrock Equity Dividend Fund, which has a Morningstar rating of five stars and is managed by Robert Shearer. The fund has had an average annual return of 13.93% over the last five years. Blackrock also owns Caterpillar (CAT), with a 1.4 short ratio; Wells Fargo (WFC), with a ratio of 1.7; and United Technologies (UTX), with a ratio of 0.5.

Kraft Foods (KFT) has a short ratio of 2.64. The company doubled its third-quarter income, meeting analysts' expectations. The stock has a P/E of 17, a PEG of 1.97 and a yield of 4.3%.

Kraft is favored by Warren Buffett, the richest man in the world. Buffett also likes Coca-Cola (KO), with a short ratio of 1.2; American Express (AXP), with a ratio of 1.0; and Wesco Financial (WSC), with a ratio of 2.0.

To see a list of the top Dow short-squeeze plays, including one Dow stock with a short ratio of 5.44, go to Stockpickr.com.

Posted on Nov. 3, 2008