Is BlackBerry ripe for a short squeeze rally?

Reuters this morning reported that short interest in BlackBerry on the Nasdaq has hit an all time high. The number of shares sold short on the Canadian smartphone maker has risen to more than 155 million, which is up from 136.5 million shares a month ago, and threatening to triple the 60 million investors were short in March of 2012.

When investors sell a stock short they are betting they can buy the stock back at a lower price. The profit in the trade comes from the difference between the price at which they sell and the price at which they buy the stock back.

Much of the recent short selling seems predicated on a fresh wave of negativity hit BlackBerry this week, in light of what was perceived as a soft US launch of its BlackBerry 10 devices.

Shares of RIM rallied On March 20th after an upgrade from Morgan Stanley analyst Ehud Gelblum, who changed his rating on the company to “overweight” from “underweight”, and more than doubled his price target, from (US) $10 to $22.

But the rally was short lived, as Goldman Sachs this week downgraded the stock.

“While we thought the international launch was solid, the U.S. launch is critical for BlackBerry’s ultimate success,” said Goldman analyst Simona Jankowski. “Our retail checks at over 20 store locations since March 22, including at AT&T T, Best Buy, BBY and Radio Shack, revealed a surprising lack of marketing support and poor positioning of the product. We also saw limited advertising around the launch.”

Ironfire Capital founder and managing partner Eric Jackson says it wouldn’t take much for those who are short to get nervous and cover their shorts.

“Even if they report a so-so quarter … if they provide robust guidance for the current quarter, that could really light a fire under the stock,” he told Reuters today.

Cormark analyst Richard Tse, who recently upgraded BlackBerry to a BUY and raised his one-year price target to $20, says BlackBerry’s Q4 will provide little insight into its real progress. He says the quarter will be distorted by the wind-down of BlackBerry 7 devices, which are now being marketed primarily to emerging markets. Tse believes BlackBerry will recover in fiscal 2014, when about 45% of the devices it sells will be BlackBerry 10′s.

BlackBerry will report its Q4 and fiscal 2013 results tomorrow at 8am EST.