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Click Here For The SEAF Model “Rainbow Charts” Update
Money Roars Back Into Technology To Support Recent Price Breakout
Conclusion, Investment Implications, Strategy

This week, the SEAF Model retains its Sep 23rd overweight bias in cyclical Real Estate (XLRE) and adds aggressive “risk on” Technology and Utilities, the latter which some market observers now consider to be a new risk on sector due to AI’s upcoming need for more infrastructure to power this new technology.  At the other end of the spectrum, economically sensitive Energy  (XLE) and cyclical Financials (XLF) are the worst-ranked sectors according to SEAF.

Separately, there are currently seven existing ETF Trade Ideas, selected based on 1) positive price trends, 2) relative outperformance versus the benchmark S&P 500, 3) expanding investor assets, and 4) risk versus reward, which include the SPDR Gold Shares ETF (GLD), the SPDR S&P Telecom ETF (XTL), the Invesco MSCI Global Timber ETF (CUT), the SPDR S&P Homebuilders ETF (XHB), and the iShares Russell 2000 ETF (IWM).  See Table 2 below for the entire list of open ETF Trade Ideas and corresponding details.

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 moving back into Utilities in the Trading and Tactical time periods.
  • Money aggressively moving into Technology in the Trading and Tactical time periods.
  • Money remains in Real Estate, especially in the Strategic time frame.
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 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 Financials.  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 September 12th.  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 top-ranked sector this week with a Ranking score of 7.  There has been a lot of talk this year that Utilities is not a defensive sector anymore, but rather an economically sensitive, “risk on” one because it now represents an increasing need for energy to meet the demands of an exploding Artificial Intelligence (AI) industry.  To that point, Utilities has been one of the top three ranked Sectors according to the SEAF Model for 10 of the past 12 weeks beginning Jly 15th.  Chart 1 below shows that XLU has outperformed the S&P 500 (SPY, lower panel) by 14% since moving to a Favored ranking by the SEAF Model on Jly 18th (upper panel).

Chart 1

Technology: XLK

Economically sensitive Technology (XLK) is the SEAF Model’s second-best-ranked sector this week with a Ranking score of 12.  The red highlights in Chart 2 below show that Technology initially slid into an Avoid ranking according to SEAF on Jly 12th (upper panel) while XLK has aggressively underperformed the S&P 500 into early September (red arrow, lower panel).  Most recently, the green highlights show that Technology rose back into Favored status by SEAF on Sep 26th while XLK has coincidentally outperformed (lower panel).  This recent aggressive flow of assets into Technology corresponds with the recent breakout higher from months of investor indecision, as displayed and discussed in our Sep 20th Keys To This Week report.  As long as Technology retains its current Favored ranking, recent outright strength in XLK and in Technology in general is likely to continue.

Chart 2

Real Estate: XLRE

Cyclical Real Estate is also the SEAF Model’s third-best-ranked sector this week with a Ranking score of 13.  The green highlights in the upper panel of Chart 3 below show that Real Estate initially moved into Favored status according to the SEAF Model on Jly 23rd and has remained there since.  The lower panel shows that XLRE has coincidentally outperformed the S&P 500 (SPY) by 13% during this period.  The Federal Reserve’s recent 50 basis point cut in the Federal Funds Rate amid expectations for more cuts later this year may help to keep Real Estate’s current Favored status intact.

Chart 3

Financials: XLF

Cyclical Financials (XLF) is the SEAF Model’s second-worst-ranked sector this week with a Ranking score of 24.  It’s noteworthy that Financials was SEAF’s top-ranked sector just three weeks earlier, on Sep 9th, as this year’s pattern of erratic and sometimes frenetic sector rotation continues.  The red highlights in Chart 4 below show that Financials edged into an Avoid ranking this week for the first time since July, and that the previous time that Financials was on an Avoid ranking between May 23rd and Jly 2nd corresponded with 3% of relative underperformance by Financials versus the S&P 500 (SPY). 

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.

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.