Assets Continue To Move Into Utilities & Real Estate, Also Health Care
Conclusion, Investment Implications, Strategy

This week, the SEAF Model retains its recent overweight bias in defensive Utilities (XLU, since 7/15) and cyclical Real Estate (XLRE, since 8/1), and adds defensive Health Care (XLV) to the model’s top-ranked sectors.  At the other end of the spectrum, cyclical Consumer Discretionary (XLY), and economically sensitive Energy (XLE) and Communication Services (XLC) are SEAF’s three worst-ranked sectors.  Economically sensitive Technology (XLK) jumped to the 2nd best-ranked sector in the Trading (weekly) category last week, but it would take more than one good week to suggest that there may be an emerging buying opportunity there.

Separately, our ETF Trade Ideas,  selected on the basis of 1) positive price trends, 2) relative outperformance versus the benchmark S&P 500, 3) expanding investor assets, and 4) risk versus reward, currently favor the SPDR S&P Insurance Sector ETF (KIE).   

Beyond The SEAF Model Video: This Week’s Sector Themes

This weekly video by Jack Kosar, MSF, goes into more detail on the latest SEAF Model data via a heat map that shows where sector-related assets are going, and where they are leaving, in the 11 Sector SPDR ETFs, and also dissects our SEAF “Rainbow Charts” which display the past 12 months of Favored, Neutral, or Avoid rankings in several key market sectors. 

From The Video: This Week’s Major Themes

** Money continues to aggressively move into Utilities, Real Estate, and Health Care in All time frames.

** Money aggressively moving into Technology in the Trading time frame.

** Money continues to aggressively leave Consumer Discretionary in All time frames.

The SEAF Model: Current Signals & Related Performance

Editor’s Note:  These are the latest specific trading signals generated by our SEAF Model, which also includes a rules-based money management component.  The backtested performance data below is based on trading a predetermined amount of assets with an equal allocation of those assets across the top three Rankings.  The model is updated once per week, on the weekend, and any rebalancing takes place on the market opening the following Monday morning.  This is the recommended way to invest via the SEAF Model.  Contact us for any additional clarification.

** Effective Monday 8/12, there is a new buy/overweight signal in the Health Care Select Sector SPDR Fund (XLV).

** The SEAF Model exited it’s Jly 8th long/overweight signal in the Financial Select Sector SPDR Fund (XLF) on Aug 9th for a 2.3% outright gain while outperforming the S&P 500 (SPY) by 6.6%.

* * Since 8/5, the Real Estate Select Sector SPDR Fund (XLRE) has risen by 2.8% while underperforming the S&P 500 (SPY) by 0.2%.

** Since 7/15, the Utilities Select Sector SPDR Fund (XLU) has risen by 6.0% while outperforming the S&P 500 (SPY) by 11.5%.

 

In the SEAF Model Graphic below, the Ranking column sorts the entire table of 11 sector ETFs according to the sum of rankings in the Trading (weekly), Tactical (monthly), and Strategic (quarterly) categories, from largest inflows to largest outflows.  The premise of the model is to invest in the sectors that the money is going into and to avoid the sectors the money is coming out of.  

The lower the Ranking number, the stronger the trend of asset flows going into that sector.  The top two sectors in each category, according to a positive change in inflows, are highlighted in green.  The top two sectors in each category, according to a negative change in outflows, are highlighted in red.

Table 1

Click the table to make it larger

Synopsis:  The latest data indicate a multi-timeframe trend of asset inflows into Utilities.  This is where the money is currently going in the sector space.  The latest data also indicate a multi-timeframe trend of asset outflows from Consumer Discretionary.  This is where the money is coming from.

SEAF Model Individual Sector Charts (“Rainbow Charts”)

The charts below display the weekly SEAF Model Ranking Scores over the previous 12 months for the strongest and weakest sectors through March 7th.  The line in the upper panel displays these weekly scores within the context of being Favored (3-15, green), Neutral (16-24, yellow), or Avoid (25-33, red) and also displays the trend of asset flows as the money moves in and out of these sectors.  The lower panel plots the corresponding weekly relative performance chart of that particular sector versus the S&P 500 (SPY).

Utilities: XLU 

Defensive Utilities (XLU) is again the SEAF Model’s best-ranked sector with a Ranking score of 3 (from 4 a week ago). According to the SEAF Model, Utilities have been one of the three top-ranked sectors of the S&P 500 for the past five weeks beginning July 15th and have outperformed the benchmark S&P 500 (SPY) by 14% during that period, as shown in the lower pane of Chart 1 below.  The longer Utilities retains its Favored ranking, the more likely XLU’s recent trend of relative outperformance versus SPY is likely to continue.

Chart 1

Real Estate: XLRE

Cyclical Real Estate is the SEAF Model’s second-ranked sector this week with a Ranking score of 9 (from 10 a week ago).  Chart 2 below shows that XLRE has outperformed the S&P 500 (SPY) by 5% since Jly 23rd, which is when Real Estate first moved to Favored status according to the SEAF Model.  Real Estate has also been among the top four SEAF rankings for the past six weeks beginning Jly 8th.  As long as XLRE remains among the top three-ranked sectors, it will remain on a buy/overweight signal according to SEAF.

Chart 2

Health Care: XLV

Defensive Health Care (XLV) is currently the SEAF Model’s third-best-ranked sector, with a Ranking score of 11.  Health Care has also been one of the four best-ranked sectors of the S&P 50 according to the SEAF Model for the past three weeks beginning Jly 25th.  The lower panel of Chart 3 below shows that XLV has outperformed the S&P 500 (SPY) by 4% during this period.  The longer Health Care retains its Favored ranking, the more likely that its recent trend of relative outperformance versus SPY is likely to continue.

Chart 3

Consumer Discretionary: XLY

Cyclical Consumer Discretionary is the SEAF Model’s worst-ranked sector this week, with a Ranking score of 31.  More importantly, Consumer Discretionary has also been one of the three worst-ranked sectors of the S&P 50 according to the SEAF Model for four of the past five weeks beginning Jly 15th.  Chart 4 below shows that this sector has been on an Avoid status since Jly 24h (upper panel) while XLYE has coincidentally underperformed the S&P 500 (SPY) by 3%.

Chart 4

Sector & Industry Group Trade Ideas: Trend, Relative Performance, Asset Flows, Risk/Reward

The ETF name and ticker, the date the idea was initiated, the price target, and the price that the idea remains valid above (or valid below if a short idea) are listed for each idea.  The current performance of the idea, both outright and relative to the S&P 500, is also listed. The ideas are listed chronologically, with the newest ideas on top and new ideas or changes highlighted in yellow.  These ideas are intended to identify short-term trading opportunities rather than longer-term investments.

Table 2

More information about the trading ideas presented in this table, including the quantitative performance of these ideas over the past 16 months, is available by Clicking Here.