Assets Continue To Move Into Utilities & Real Estate, Back Into Financials.
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 re-adds cyclical Financials (XLF) to the model’s top-ranked sectors. Financials has been one of the three best-ranked sectors of the S&P 500 according to the SEAF Model for the past six of seven weeks. Also noteworthy is that economically sensitive Technology is creeping back up to the top-ranked sectors with a #1 ranking in the Trading time frame last week.
At the other end of the spectrum, economically sensitive Energy (XLE) and Communication Services (XLC) and cyclical Consumer Discretionary (XLY) are the three worst-ranked sectors.
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), the SPDR Gold Shares ETF (GLD), and the SPDR S&P Telecom ETF (XTL).
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 aggressively moving into Financials in All time frames.
- Money aggressively moving back into Technology in the Trading and Strategic time frames.
- Money continues to aggressively move into Utilities in the Tactical and Strategic 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 8/19, there is a new buy/overweight signal in the Financial Select Sector SPDR Fund (XLF).
- The SEAF Model exited it’s Aug 12th long/overweight signal in the Health Care Select Sector SPDR Fund (XLV) on Aug 16th for a 2.3% outright gain while underperforming the S&P 500 (SPY) by 1.6%.
- Since 8/5, the Real Estate Select Sector SPDR Fund (XLRE) has risen by 2.9% while underperforming the S&P 500 (SPY) by 3.9%.
- Since 7/15, the Utilities Select Sector SPDR Fund (XLU) has risen by 7.1% while outperforming the S&P 500 (SPY) by 8.6%.
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.
Click the table to make it larger
Synopsis: The latest data indicate multi-timeframe trends of asset inflows into Utilities and Financials. This is where the money is currently going in the sector space. The latest data also indicate multi-timeframe trends of asset outflows from Consumer Discretionary and Energy. 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).
Financials: XLF
Cyclical Financials (XLF) is currently the SEAF Model’s best-ranked sector, with a Ranking score of 7. Financials has also been one of the three best-ranked sectors of the S&P 50 according to the SEAF Model for the past six of seven weeks beginning on Jly 8th. Chart 1 below shows that Financials has essentially maintained a Favored SEAF Ranking since Jly 2nd (upper panel) while XLF has coincidentally outperformed the S&P 500 (SPY, lower panel) by 5%.
Utilities: XLU
Defensive Utilities (XLU) is the SEAF Model’s second-best-ranked sector with a Ranking score of 10. Note that although Utilities fell to 8th in the Trading time frame, it maintains a #1 ranking in the Tactical and Strategic time frames. According to the SEAF Model, Utilities has been one of the three top-ranked sectors of the S&P 500 for 10 of the past 12 weeks beginning on June 3rd. Chart 2 below shows that Utilities has maintained a Favored SEAF Ranking since Jly 18th (upper panel) while XLU has coincidentally outperformed the S&P 500 (SPY, lower panel) by 8%.
Real Estate: XLRE
Cyclical Real Estate is the SEAF Model’s third-ranked sector this week, with a Ranking score of 12 via #4 rankings across all three time frames. According to the SEAF Model, Real Estate has been one of the four top-ranked sectors of the S&P 500 for 9 of the past 10 weeks beginning on June 10th. Chart 3 below shows that Real Estate has maintained a Favored SEAF Ranking since Jly 23rd (upper panel) while XLRE has coincidentally outperformed the S&P 500 (SPY, lower panel) by 2%.
Consumer Discretionary: XLY
Cyclical Consumer Discretionary is the SEAF Model’s third-worst-ranked sector this week, with a Ranking score of 23. 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 five of the past six weeks beginning Jly 15th. Chart 4 below shows that this sector has been on an Avoid status since Jly 24th (upper panel) while XLY has coincidentally underperformed the S&P 500 (SPY) by 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.
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.