Editor’s Note:  We have recently changed the name of this report to Beyond The SEAF Model Video & ETF Trading Ideas, from Keys To This Week: Market Sectors & Industry Groups, simply because it more correctly indicates what the report is about.  This report  focuses on the SEAF Model’s accompanying weekly video in which Jack Kosar, MSF, goes into much more detail on the latest SEAF Model data.  It includes a heat map that shows in more detail where sector-related assets are going, and where they are leaving, in the 11 Sector SPDR ETFs — in three different time frames.  It also dissects our SEAF “Rainbow Charts” which display the past 12 months of Favored, Neutral, or Avoid rankings in the 11 Sector SPDR’s. Finally, the report includes a weekly update on our latest ETF Trading Ideas.

Sector Rotation Questions Sustainability Of New All-Time Highs
Conclusion, Investment Implications, Strategy

As has been the case for much of 2024, the S&P 500 market sectors at the top and the bottom of our SEAF Model rankings this week are atypically split between offensive and defensive sectors.  Specifically, offensive Technology and Consumer Discretionary are the strongest and weakest sectors this week, and defensive Consumer Staples and Health Care are the third strongest and third weakest sectors.  This erratic alignment in our model indicates directional indecision as investors appear to be uncertain of whether the recent new all-time high in the S&P 500, on the heels of a huge 30% advance since October 2023, is sustainable.

Separately, our Sector and Industry Group ETF ideas, which are 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 continue to favor grains (CORN, WEAT), gold miners (RING), and aerospace and defense (XAR).  Generally, there continues to be an emerging trend of higher commodity prices.

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 Technology.
  • Money starting to move out of  Utilities.
  • Money continues to aggressively leave Energy.
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

Conclusion:  The latest data in multiple time frames indicate a multi-timeframe trend of asset inflows into Technology.  This is where the money is currently going in the sector space.   The latest data also indicate multi-timeframe trends of asset outflows from Energy and 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).

Technology: XLK

Technology is the SEAF Model’s top-ranked sector this week with a Ranking score of 5.  Note that XLK is ranked #1 this week in both the Trading and Tactical time frames.  The green highlights near the right edge of Chart 1 below show that, following a lot of investor uncertainty since March as Technology’s SEAF ranking oscillated back and forth between Favored and Avoid status, it most recently moved back to Favored status as of May 14th while XLK has coincidentally outperformed the S&P 500 (SPY, lower panel) by 3%.  As long as Technology retains its Favored status according to SEAF, recent relative outperformance by XLK is likely to continue.

Chart 1

Communication Services: XLC

Communication Services is the SEAF Model’s second-ranked sector this week with a Ranking score of 14.  The green highlights in Chart 2 below show that offensive Communication Services aggressively moved into Favored status on May 22nd (upper panel) after residing in Neutral or Avoid status since mid-April.  Note that XLC was the second strongest sector in the most sensitive Trading time frame last week. As long as Communication Services retains its Favored status according to SEAF, recent relative outperformance by XLC is likely to continue.

Chart 2

Consumer Staples: XLP

Consumer Staples is the SEAF Model’s third-ranked sector this week, with a Ranking score of 14 (tied with Communication Services).  Note that this is about the highest SEAF ranking that defensive Consumer Staples has had over the past year, equivalent to late October of 2023 when the broad market S&P 500 was under pressure and investors were starting to move into more defensive sectors.  

Chart 3

Consumer Discretionary: XLY

Consumer Discretionary is once again the SEAF Model’s worst-ranked sector this week with a Ranking score of 29.  The red highlights in Chart 4 below show that offensive Consumer Discretionary moved into Avoid status on May 6th after a brief April move into Neutral status, from Avoid since Mar 8th.  The red arrow in the lower panel shows that XLY has underperformed the S&P 500 (SPY) by 5% since May 6th.  Considering that Consumer Discretionary is considered to be an offensive sector, we view its status as the worst-ranked sector this week as more evidence of US broad market directional indecision as investors appear to be uncertain of whether the recent new all-time high in the S&P 500 is sustainable.

Chart 4

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

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