Assets Aggressively Moving Into Defensive Utilities & Consumer Staples
Conclusion, Investment Implications, Strategy

This week, the SEAF Model retains its recent overweight bias in defensive Utilities (XLU, since 7/15) and adds another defensive sector, Consumer Staples (XLP), to its top three rankings.  This is atypical investor behavior while the benchmark S&P  is challenging its all-time highs and suggests investors may be shifting to a more defensive market positioning as a hedge against an over-extended stock market amid a slowing US economy.  Cyclical Financials rounds out the top three SEAF rankings this week and has stayed in the top three for seven of the past eight weeks.  At the other end of the spectrum, economically sensitive Energy (XLE), Technology (XLK), and Consumer Discretionary (XLY) , typically offensive “risk on” sectors, 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 Consumer Staples and Financials in the Trading time frame.
  • Money continues to move into Health Care in All time frames.
  • Money continues to aggressively move out of Energy 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.

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 multi-timeframe trends of asset inflows into Financials and Utilities.  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).

Utilities: XLU 

Defensive Utilities (XLU) is the SEAF Model’s best-ranked sector this week with a Ranking score of 7.  According to the SEAF Model, Utilities has been one of the three top-ranked sectors of the S&P 500 for 11 of the past 13 weeks beginning on June 3rd. Chart 1 below shows that Utilities has maintained a Favored SEAF Ranking since Jly 15th (upper panel) while XLU has coincidentally outperformed the S&P 500 (SPY, lower panel) by 9%.

Chart 1

Consumer Staples: XLP

Defensive Consumer Staples is the SEAF Model’s second-ranked sector this week, with a Ranking score of 8, and is also the top-ranked sector in the Trading time frame.  Chart 3 below shows that last week’s aggressive jump into Favored status is the highest ranking that Consumer Staples has had over the past year.  The fact that defensive Utilities is also a top-ranked sector this week suggests that investors may be shifting to a more cautious market positioning as a hedge against an over-extended S&P 500 amid a slowing US economy.

Chart 2

Financials: XLF

Cyclical Financials (XLF) is currently the SEAF Model’s third-ranked sector, with a Ranking score of 9.  Financials has been one of the three best-ranked sectors of the S&P 50 according to the SEAF Model for the past seven of eight weeks beginning on Jly 8th.  Chart 3 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 7%.

 

Chart 3

Consumer Discretionary: XLY

Cyclical Consumer Discretionary is the SEAF Model’s third-worst-ranked sector this week, with a Ranking score of 26.  More importantly, Consumer Discretionary has also been one of the three worst-ranked sectors of the S&P 500 according to SEAF for six of the past seven 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 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.