Opposites Technology, Utilities Continues To Attract The Best Asset Flows
Conclusion, Investment Implications, Strategy

Technology has had a top three SEAF Model ranking for 15 of the past 25 weeks thus far this year and is just one of two sectors (the other one is Communication Services) that have outperformed the S&P 500 year-to-date.  This year’s strength in Tech has been driven by AI, which has almost single-handedly dragged the market higher since the second week of January.  Under the radar, though, is that defensive Utilities has been one of the SEAF Model’s three best-ranked sectors for 6 of the past 7 weeks.  This means that, while the market continues to chase market cap behemoths NVIDIA (NVDA), Microsoft (MSFT), and Apple (AAPL) higher, there is a significant chunk of assets buying Utilities as a hedge against the inevitable corrective decline, especially considering that the S&P 500 (SPX) has risen by 33% since October 2023.  The third-best ranked sector this week is Real Estate, which may be benefitting from the recent collapse in long-term US  interest rates as the yield of the benchmark 10-Year Treasury Note has declined by 55 basis points just since Apr 25th.

Separately, our ETF Trade 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 currently favor only Telecom (XTL).   This is because, of the 83 market sector, industry group, and commodities-related ETFs that we track for our ETF Trade Ideas, just five — Technology (XNTK), Telecom (XTL), Semiconductors (XSD), Solar (TAN), and Natural Gas (UNG) — are currently outperforming the S&P 500 on a quarterly, Strategic basis.  This is extremely atypical market behavior and the reason why there aren’t any additional names populating our table.

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 very aggressively moving into Technology.
  • Money very aggressively leaving Energy.
  • Money aggressively leaving Financials.
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 continued multi-timeframe trend of asset inflows into Utilities and 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 Financials 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).

Technology: XLK

Technology is the SEAF Model’s top-ranked sector this week with a Ranking score of 3.  Technology has had a top three SEAF Model ranking for 15 of the 25 weeks thus far this year and is just one of two sectors that have outperformed the S&P 500 year-to-date.  The upper panel of Chart 1 below shows that, with the exception of a very brief period around Jun 4th, the SEAF Ranking for offensive Technology has been in Favored status since May 15th.  The lower pane shows that XLK has outperformed the S&P 500 (SPY) by 8% since May 1st, which is when the SEAF model first moved out of Avoid status.  As long as Technology retains its Favored status, XLK’s recent relative outperformance is likely to continue.

Chart 1

Utilities: XLU

Defensive Utilities is the SEAF Model’s second-best-ranked sector this week with a Ranking score of 11 and has been one of the three best-ranked sectors for 6 of the past 7 weeks.  The upper panel shows that  Utilities moved into Favored Status according to SEAF on April 30th and, with the exception of May 23rd, has remained there since.  Meanwhile, XLU has atypically underperformed the S&P 500 (SPY) by 3%.  Our takeaway from these data is that there has been a strong and steady bet by a significant contingent of investors for almost 2 months that the broad market is over-extended and vulnerable, and they are putting their money where their mouth is by moving assets into defensive Utilities.  This is very atypical market behavior while the benchmark S&P 500 is trading at all-time highs.  Also note that this is currently the highest SEAF Ranking that Utilities has seen over the past 12 months.

Chart 2

Real Estate: XLRE

Cyclical Real Estate is the SEAF Model’s third-ranked sector this week with a Ranking score of 14.  The green highlights in the upper panel of Chart 3 below show that Real Estate edged into a Favored SEAF Ranking at the end of last week after languishing in the lower edge of a Neutral ranking since late January while XLRE underperformed the S&P 500 (SPY, lower panel).  Although there is no way of knowing how long Real Estate will maintain its current Favored ranking, the green highlights in the middle of the chart show that XLRE had a sustained period of Favored status between mid-October and late December/early January while outperforming SPY by as much as 8% during that period.

Chart 3

Energy: XLE

Energy is the SEAF Model’s -worst-ranked sector this week with a Ranking score of 26, and has been one of the SEAF Model’s 3 weakest sectors for 5 of the past 6 weeks. The rightmost red highlights in the upper panel of Chart 4 below show that Energy moved into an avoid Ranking on Jun 5, from a Neutral status since May.  The lower panel shows that XLE has underperformed the S&P 500 (SPY) by 4% since then.  The red highlights in the middle of the chart show that Energy was previously on an Avoid status between Nov 24th and Mar 7th while XLE coincidentally underperformed SPY by 9%.  Although there has been some chatter in the financial media about Energy being at a value level, until the sector moves into a Favored status, according to SEAF, we believe it is too soon — and too risky — to try to “catch the falling knife”.

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

More information about the trading ideas presented in this table, including the quantitative performance of these ideas over the past 13 months, is available by Clicking Here.