Editor’s Note:  Effective this week, we have 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.  It focus 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 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 Indecisive As Traders Hedge Against A Correction
Conclusion, Investment Implications, Strategy

The S&P 500 market sectors at the top and the bottom of our SEAF Model rankings this week remain split between offensive (Technology, Consumer Discretionary) and defensive (Utilities, Health Care) ETFs.  This erratic and atypical alignment in our model indicates directional indecision as investors seem to be uncertain about whether the new all-time high in the S&P 500, on the heels of a 30% advance since October 2023, is a new buying opportunity or a good time to hedge portfolios against the next significant corrective decline. Specifically, the three best-ranked sectors according to SEAF are defensive Utilities (XLU), interest rate sensitive Financials (XLF), and offensive Technology (XLK).  

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 utilities (XLU), grains (CORN, WEAT), and foreign equities (EWP) and have recently added emerging markets (EEM), lumber (WOOD), and banks (KBE).

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 beginning to move back into Technology.
  • Money continues to move into Utilities.
  • Money continues to aggressively leave Energy.
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

Utilities is the SEAF Model’s best-ranked sector this week with a Ranking score of 6.  The green highlights in Chart 1 below show that defensive Utilities moved into Favored status on Apr 30th (upper panel) as XLU has coincidentally outperformed the S&P 500 (SPY, lower panel) by 4%, driven by these recent aggressive asset inflows in multiple time frames.  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 an upcoming bearish reversal in the currently overextended US broad market.

Chart 1

Financials: XLF

Financials is the SEAF Model’s second-best ranked sector this week with a Ranking score of 11. The green highlights near the right edge of Chart 2 below show that interest rate-sensitive Financials initially moved into Favored status on Apr 16th (upper panel) and, with the exception of a quick dip into Neutral status on May 3rd, has remained there since then.  Meanwhile, XLF has outperformed the S&P 500 (SPY, lower panel) by 2%, driven by these expanding assets.  As long as Financials remains in Favored territory according to SEAF, recent relative outperformance by XLF is likely to continue.

Chart 2

Consumer Discretionary: XLY

Consumer Discretionary is once again the SEAF Model’s worst-ranked sector this week with a Ranking score of 30.  The red highlights in Chart 3 below show that offensive Consumer Discretionary moved into Avoid status on May 6th after a brief April move into Neutral status, from Avoid since Mar 8th.  The red arrow in the lower panel shows that XLY has underperformed the S&P 500 (SPY) by 4% since May 6th.  Considering that Consumer Discretionary is considered to be an offensive sector, we view its status as the worst-ranked sector this week as more evidence that the market may be starting to position itself for a broad market decline.

Chart 3

Health Care: XLV

Health Care is the SEAF Model’s second worst-ranked sector this week, with a Ranking score of 25.  The red highlights in the upper panel of Chart 4 below show that defensive Health Care moved into Avoid status on Mar 13th and, with brief exceptions on May 2nd and 13th, has remained there since.  The lower panel shows that XLV has coincidentally underperformed the S&P 50 (SPY) by 3%.  As long as Health Care maintains its current Avoid status, its recent relative underperformance versus the broad market S&P 500 (SPY) is likely to continue.

Chart 4

 

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 Energy and Consumer Discretionary. This is where the money is coming from.

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 be potential short-term trading opportunities rather than longer-term investments.

Table 2