Technology, Comm Services Have Had Most Consistently Favored SEAF Rankings & Best YTD Relative Outperformance
Conclusion, Investment Implications, Strategy

Technology (XLK) has had a top-three SEAF Model ranking for 16 of the past 25 weeks year-to-date (YTD), while Communication Services (XLC) has had a top-three SEAF Ranking for 12 of the 26 weeks during this period.   Accordingly, XLK and XLC are also the only two sectors of the S&P 500 that have outperformed the S&P 500 Trust ETF (SPY) YTD, and by just 4.1% and 2.3%.  At the other end of the spectrum, Health Care (XLV) and Energy (XLE), the sectors with the first and third worst SEAF Rankings this week, have underperformed SPY by 6.9% and 7.6% YTD.  So, generally speaking, asset inflows and outflows have continued to be a major influence on sector relative performance this year.  However, the first six months of this year have been very atypical because of the lack of a sustained trend of asset inflows into any one sector, which has resulted in the lack of a large enough trend of relative outperformance by any sector to be lucrative.  We have seen this erratic behavior in the SEAF Model all year as investor assets pile into offensive Technology one week, and then pile into defensive Utilities the next.

This means that, under the hood of the market, investors are uncertain of what to do, perhaps because of uncertainty about the future direction of interest rates, the upcoming Presidential election, and the ability of a handful of mega-cap AI stocks to continue dragging the market higher amid a 34% rise in the S&P 500 just since October 2023.  The market hates uncertainty more than any other condition, and there is an atypical amount of uncertainty right now.  

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 four — Technology (XNTK, XLK), Semiconductors (XSD), 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 aggressively leaving Financials and Health Care.

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 indicate multi-timeframe trends of asset inflows into Technology and Communication Services.  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, Energy, 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 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

Offensive Technology is the SEAF Model’s top-ranked sector this week with a Ranking score of 3, which is the highest possible score.  Technology has had a top three SEAF Model ranking for 16 of the 26 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 4% since then.  As long as Technology retains its Favored status, XLK’s recent relative outperformance is likely to continue.

Chart 1

Communication Services: XLC 

Offensive Communication Services (XLC) is the SEAF Model’s second-best-ranked sector this week with a Ranking score of 7.  This sector has had a top three SEAF Model ranking for 12 of the 26 weeks thus far this year and, with Technology, is one of just two sectors that have outperformed the S&P 500 during this period.  Chart 2 below shows that Communication Services moved into Favored Status according to SEAF on May 23rd (upper panel) while XLC has coincidentally been a relative performer versus the S&P 500 (SPY).  The longer that Communication Services maintains its current Favored status within SEAF, the more likely that XLC will continue to outperform SPY  this year.

Chart 2

Real Estate: XLRE

Cyclical Real Estate is the SEAF Model’s third-ranked sector this week with a Ranking score of 12.  The green highlights in the upper panel of Chart 3 below show that Real Estate edged into a Favored SEAF Ranking on Jun 13th after languishing in the lower edge of a Neutral ranking since late January while XLRE underperformed the S&P 500 (SPY, lower panel).  The red highlights show that Real Estate currently has the highest SEAF Model ranking since mid-January, and essentially over the past 12 months period.  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

Health Care: XLV

Health Care is the SEAF Model’s worst-ranked sector this week with a Ranking score of 31, and has been one of the SEAF Model’s 3 weakest sectors for 12 of the past 15 weeks beginning on Mar 18th.  Chart 4 below shows that, with the exception of brief moves into a Neutral SEAF Ranking in mid-May and in early June, Health Care has been on an Avoid Ranking since Mar 13th (upper panel) while XLV has coincidentally underperformed the benchmark S&P 500 (SPY, lower panel) by 5%.  

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.