It wasn't much, but finally obtaining a positive return this year feels better than losing money.

Last week the volatility was to the upside and most market sectors participated although the commodity-oriented companies continued to lead the way.

I haven't commented on politics in a while but, looking at the Presidential race, I find it interesting that the market seems to do better when Barrack Obama is having problems. As I have mentioned in the past, I am apprehensive about a Democratic victory in the fall because increasing marginal tax rates and capital gains rates will, I believe, reduce potential economic growth and specifically hurt the stock market. Now that Obama looks to be a mere mortal, I think the market can focus more on future earnings -- at least for now.

Rather than trying to outguess the political or economic future, I use sentiment indicators to gauge the current market environment. Those indicators weakened a bit last week but are still more positive than negative.

The equity only put/call ratio on the CBOE remains very high and I continue to rate that indicator as extremely bullish. Similarly, the confidence level of smart investors compared to dumb investors is at a very elevated level and remains extremely bullish.

On the bearish side, I continue to be disappointed by the high level of speculation occurring in this market as measured by the ratio of

Nasdaq

volume to

NYSE

volume. This indicator remains extremely bearish.

The rest of my indicators are neutral. The level of odd lot sales including short sales compared to odd lot purchases is declining but still remains in neutral territory. Money flows into bearish Rydex funds compared to flows into bullish funds is also declining but remains neutral. Joining these indicators in neutral territory is the level of odd lot short sales compared to odd lot purchases. Let's look at that indicator now:

Click here for larger image.

This is a five-year chart showing the relationship between odd lot short sales and odd lot purchases in red. The

S&P 500

is shown in black and the green trend lines relate to the indicator's average and standard deviations. This ratio has increased over time as hedge funds have become more popular, so I have eliminated that trend by dividing the 10-week moving average of the ratio by the 52-week moving average of the same ratio.

When odd lot investors get very negative and short stocks heavily compared to their purchases of stocks, it is an indication that market weakness has been overdone and a rally should be expected. This is what happened in late February and March when this indicator crossed over into bullish territory. Now, though, odd lot short sellers have backed off a bit, causing the indicator to fall back to neutral.

I don't view this small slippage in my indicators as very significant and have just nudged my target cash position up slightly to 22% from 21%. The actual cash position in my IRA as of the end of last week was 20.9%.

My biggest problem in managing my investments currently continues to be the lack of new ideas that I judge as suitable for new investment. My screening system is still heavily weighted with energy-related companies, but I am not willing to commit more funds to this area because of my diversification requirements.

I am concerned that the market will continue to narrow in terms of leadership and that this narrowing will ultimately result in a collapse similar to the one that occurred in technology in the 2000-2002 time frame and the more recent decline in housing related equities.

If the strength in energy-related stocks continues for another couple of months, we could be setting ourselves up for a more thorough washout than we have seen heretofore. I am watching these factors very closely.

Last week I sold my position in

Open Text

(OTEX) - Get Report

because I had held that stock for seven months and it no longer appeared on my screening system as a buy. I also sold one half of my position in

Life Sciences Research

( LSR) because a combination of appreciation by that stock and a decline in the median company valuation of the research services industry left LSR looking fairly valued at current price levels.

I was unable to identify any individual stocks to buy so I added to my position in

S&P 500 Depository Receipts

(SPY) - Get Report

. Because of my inability to find new individual stocks to buy, I now have about 45% of my total portfolio in this ETF.

The energy-related stocks that I do own were again the stars last week.

Complete Petroleum Services

( CPX) was up 12.3%,

Stone Energy

(SGY)

was up 9.6% and

Helmerich & Payne

(HP) - Get Report

was up 9.5%. The first two still seem to be very attractive when compared to industry median valuation but HP looks to be approaching fair value and I rate it a hold.

Technology stocks were also strong last week, leading to nice increases in

Rofin Sinar Technologies

(RSTI)

, which was up 8.6%, and

Sybase

( SY), which was up 7.9%. I continue to think that RSTI is fairly valued and that SY is attractive for purchase.

The table that follows shows all the current holdings in my IRA as of last week:

Richard Moore, CFA, has 40 years of experience in various facets of the investment business. He has been employed by banks, mutual funds and investment advisory organizations during his career and has also owned retail and service businesses. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Moore appreciates your feedback;

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to send him an email.