BOSTON (MarketWatch) -- Eric Newman, portfolio manager for TFS Capital, says the stock market's current volatility is caused, at least in part, by a short squeeze of 'historic proportions.'
In a radio interview with Chuck Jaffe, MarketWatch senior columnist, Newman discussed how hedge fund managers have had to unwind many positions and showed that this has led to the improbable scenario where the stocks that the market seems to hate -- the ones with the most investors betting against them -- have been the stocks with the strongest absolute performance this month.
Newman explained that the stocks with the highest short interest have seen dramatic increases in trading volume in July, and have significantly outperformed stocks that the short-sellers are not betting against. Among those: American Vanguard /zigman2/quotes/201613590/composite AVD -0.47% , Crosstex Energy and NL Industries /zigman2/quotes/210222881/composite NL -2.20% .
Newman suggested that investors who have seen their unloved stocks pop up this month might consider taking their profits, because the squeeze will end and the market will get back to valuing these stocks, as well as the high-quality names that have been driven down by the current market, more fairly.
In another interview, Gregg Brewer, executive director of research for Value Line, recommended Fidelity Select Banking /zigman2/quotes/209452414/realtime FSRBX +0.22% , noting that while it may get hammered a bit longer as the subprime mortgage mess and credit crisis plays out, it should also represent good value for investors who buy in when those stocks are out of favor, as they are now.
Jaffe's radio show regularly features reviews of stocks and mutual funds suggested by MarketWatch readers; to request a stock or mutual fund for review, send your name, hometown and the ticker symbols that interest you to Chuck Jaffe .