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 Remains Erratic, Indicating Market Uncertainty
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.  This week, defensive Utilities (XLU) and offensive Communication Services (CLC) are ranked #1 and #2 and defensive Health Care (XLV) and offensive Consumer Discretionary (XLY) are ranked #11 and #9.  This erratic, atypical 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 (WEAT) and gold miners (RING).

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 back into Utilities.
  • Money aggressively left Technology last week.
  • Money aggressively leaving 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 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 Health Care 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).

Utilities: XLU

As was the case two weeks ago, defensive Utilities is once again the SEAF Model’s best-ranked sector this week with a Ranking score of 5.  This is very atypical market behavior while the benchmark S&P 500 is trading at all-time highs.  The green highlights in Chart 1 below show that Utilities moved into Favored status on Apr 30th (upper panel) while XLU has coincidentally outperformed the S&P 500 (SPY, lower panel) by 4%.  Also note that this is currently the highest SEAF ranking that Utilities has seen over the past 12 months.  Since Utilities is typically a defensive choice in the stock market, recent aggressive asset inflows into XLU suggest that investors may be preparing for a bearish reversal in the currently overextended US broad market.

Chart 1

Communication Services: XLC

Communication Services is once again the SEAF Model’s second-ranked sector this week with a Ranking score of 12.  The green highlights in Chart 2 below show that offensive Communication Services aggressively moved into Favored status on May 23rd (upper panel) after residing in Neutral or Avoid status since mid-April.  Note that the two strongest sectors, according to the SEAF Model, are at opposite ends of the spectrum in terms of being Risk Off (Utilities) and Risk On sectors.  This indicates investors’ directional indecision while many major indexes are making new all-time highs.

Chart 2

Technology: XLK

Technology is the SEAF Model’s third-ranked sector this week with a Ranking score of 14.  Note that XLK dropped to a #8 ranking in the Trading (weekly) time frame last week from #1 a week earlier (the week ending May 24th), which resulted in Technology dropping down to the bottom of the green Favored band in the upper panel while XLK underperformed the S&P 500 (SPY) last week.  Technology will need to attract some new assets this week to maintain its Favored status according to SEAF.

Chart 3

Health Care: XLV

Health Care is the SEAF Model’s worst-ranked sector this week with a Ranking score of 31.  The red highlights in Chart 4 below show that defensive Health Care moved into Avoid status on Mar 13th and, with just a few brief exceptions, has remained there since while XLV has underperformed the S&P 500 (SPY) by 4%.  Also note that another traditionally defensive sector, Utilities, is ranked #1 this week according to SEAF.  This indicates just how conflicted and uncertain investors are right now about upcoming broad market direction.

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