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Click Here For This Week’s SEAF Model “Rainbow Charts” Update
Directional Inflection Point Looming
Conclusion, Investment Implications, Strategy
The SEAF Model has once again retained the previous week’s top-three ranking for Financials (XLF) and Communication Services (XLC) while adding Industrials (XLI) to the top three Ranking scores. XLF and XLI are relatively new mid-January additions to the SEAF Model’s Favored ranking while XLC has, with few exceptions, been favored since mid-November. At the other end of the spectrum, SEAF shows that investor assets are aggressively moving out of Energy (XLE).
Beyond The SEAF Model Video: This Week’s Sector Themes
This weekly video by Jack Kosar 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 continues to aggressively move into Financials and Communication Services in All time periods.
- Money aggressively moving out of Energy in All time periods.
- Money aggressively moving out of Health Care in the Trading and Strategic 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.S
- Effective Monday 2/10, there is a new buy/overweight signal in the Industrial Select Sector SPDR Fund (XLI).
- The SEAF Model exited it’s Feb 3rd long/overweight signal in the Consumer Discretionary Select Sector SPDR Fund (XLY) on Feb 7th for a 1.5% outright loss while underperforming the benchmark S&P 500 (SPY) by 2.0%
- Since 1/21, the Financial Select Sector SPDR Fund (XLF) has risen by 2.8% outright while outperforming the S&P 500 (SPY) by 1.8%.
- Since 1/27, the Communication Services Select Sector SPDR ETF Fund (XLC) has risen by 4.0% outright while outperforming the S&P 500 (SPY) by 2.7%.
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.
Click the table to make it larger
The latest data indicate a multi-timeframe trend of asset inflows into Financials. This is where the money is currently going in the sector space.
The latest data also indicate a multi-timeframe trend of asset outflows out of 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 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).
Financials (XLF)
Cyclical Financials (XLF) is again the SEAF Model’s top-ranked sector this week with a Ranking score of 3, which is the best Ranking score possible and indicative of aggressive asset inflows across the board. The rightmost green highlights in Chart 1 below show that Financials moved into Favored status on Jan 14th (upper panel) as the daily relative performance chart of XLF versus the benchmark S&P 500 responded with as much as 6% of relative outperformance versus the benchmark S&P 500 (SPY).
Chart 1
Communication Services: XLC
Economically sensitive Communication Services (XLC) is the SEAF Model’s second-best-ranked sector this week with a Ranking score of 11. The green highlights in the upper panel of Chart 2 below show that, with the brief exception of a few days around Jan 17th when the SEAF Ranking score briefly dipped into Neutral status, Communication Services has maintained a Favored ranking since Nov 12th. The lower panel shows that XLC has outperformed the S&P 500 (SPY) by 6% during this 3-month period.
Chart 2
Industrials: XLI
Economically SensitiveIndustrials (XLI) is the SEAF Model’s third-ranked sector this week with a Ranking score of 13. The green highlights in the upper panel of Chart 3 below show that Industrials moved into Favored status on Jan 13th and, with the exception of Jan 29th, has remained there since. The lower panel shows that XLU has thus far coincidentally outperformed the benchmark S&P 500 (SPY) by 1. As long as Industrials retains its Favored status, XLI is likely to continue outperforming the broad market.
Chart 3