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Click Here For The SEAF Model “Rainbow Charts” Update
Utilities Remain Favored, Energy & Communication Services Edging Into Favored Status
Conclusion, Investment Implications, Strategy

This week, the SEAF Model retains its Sep 30th overweight bias in Utilities, which has traditionally been a defensive sector but what 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.  The other top-ranked sectors this week are economically sensitive Energy (XLE) and Communication Services (XLC).  At the other end of the spectrum, defensive Health Care (XLV) and cyclical Financials (XLF) are the worst-ranked sectors according to SEAF.

Editor’s Note: Year-to-date, the three top-performing Select Sector SPDR ETFs, in order, Utilities (XLU), Communication Services (CLC), and Financials (XLF), have also in order been the three best-performing SEAF Model signals of 2024.  In other words, the SEAF Model has had us in the best-performing sectors throughout the year.

 

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 remains in Utilities in All time periods.
  • Money aggressively moving into Energy in the Trading and Tactical time periods.
  • Money aggressively moving out of Health Care in the Trading and Tactical time periods.
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 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 Technology and Health Care.  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 5.  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 11 of the past 13 weeks beginning Jly 15th.  Chart 1 below shows that XLU has outperformed the S&P 500 (SPY, lower panel) by 13% through the end of last week since moving to a Favored ranking by the SEAF Model on Jly 18th (upper panel).

Chart 1

Energy: XLE

Economically sensitive Energy (XLE) is the SEAF Model’s second-best-ranked sector this week with a Ranking score of 14.  The rightmost green highlights in the upper panel of Chart 2 below show that Energy edged into Favored status according to the SEAF Model at the end of last week.  This is the first time that Energy has been one of the top three ranked sectors according to SEAF since Apr 29th.  Although it’s too early to determine if this is the beginning of a new period of sustained relative outperformance by Energy, the green highlights in the middle of the chart show that XLE  outperformed the S&P 500 (SPY) by 6% while on a sustained Favored SEAF ranking between Mar 12th and May 2nd.

Chart 2

Communication Services: XLC

Economically sensitive Communication Services (XLC) is the SEAF Model’s third-best-ranked sector this week with a Ranking score of 15.  The green highlights in Chart 3 below show that Communications Services edged into a Favorable ranking last week for the first time July (upper panel) while XLC has outperformed the S&P 500 (SPY) by 4% since bottoming out on a SEAF Model Avoid status on Sep 3rd.  Although, like Energy,  it’s too early to determine if this is the beginning of a new period of sustained relative outperformance by Communication Services, the green highlights in the middle of the chart show that XLC  outperformed the S&P 500 (SPY) by 6% while on a sustained Favored SEAF ranking between Dec 5th 2023 and Feb 20th.

Chart 3