Following the debut of Palm's (PALM: sentiment, chart, options) new WebOS and its Palm Pre touch-screen smartphone yesterday, the stock rocketed more than 34% higher. Today, the equity has added another 38%, positioning the shares to close the week above their 10-week and 20-week moving averages for the first time since mid-September 2008. Given this 2-day meteoric rise, I certainly wouldn't want to be shortting PALM at the moment.

Some short sellers exited before the storm hit, as the number of PALM shares sold short dropped 3.5% during the most recent reporting period. That said, a whopping 41% of the equity's float remains sold short, accounting for a short interest ratio of 13.2 days to cover. While the unveiling of rather impressive smartphone and fresh OS certainly prompted the initial surge in PALM shares, it would make sense that much of today's rally, and potentially any additional follow through into next week, could be driven by short sellers covering their positions.

For PALM bulls, keep an eye on the 6.50-7 region. When this former area of technical support was breached in early October, short interest on the stock surged more than 13% from 35.8 million shares to 40.7 million. As such, a move back above this region could spook these remaining short sellers, thus adding fuel to PALM's rally.