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Technology (XLK), Communication Services (XLC) Remain Top-Ranked Sectors
Conclusion, Investment Implications, Strategy

Communication Services (XLC) and Technology (XLK) retain their previous weeks’ status as top-ranked sectors according to SEAF while adding Financials as the best-ranked sector this week with a Ranking score of 7.  Of these, XLC and XLF have been among the top three SEAF Model rankings 6 and 5 times, respectively, of the 7 weeks thus far this year.  XLC and XLF have also been the 2nd and 3rd strongest sectors year-to-date while outperforming the benchmark S&P 500 (SPY) by 1.0% and 0.5%, showing the close relationship between asset flows and performance that the SEAF Model is built on.  At the other end of the spectrum, investor assets are most aggressively moving out of Health Care (XLV) and Consumer Discretionary (XLY).

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 provides more detail on where sector-related assets are going, and where they are leaving, in the 11 Sector SPDR ETFs.  Jack also displays and discusses our SEAF “Rainbow Charts” which highlight SEAF’s past 12 months of Favored, Neutral, or Avoid rankings. 

From The Video: This Week’s Major Themes
  • Money aggressively moving into Financials and Communication Services in the Tactical and Strategic time periods.
  • Money moving into Technology in All time periods.
  • Money aggressively moving out of Health Care, Consumer Discretionary, and Energy in various 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

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 Communication Services and 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, Consumer Discretionary 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 the SEAF Model’s top-ranked sector this week with a Ranking score of 7.  The green highlights in Chart 1 below show that Financials moved back into Favored status on Jan 14th and has remained there since (upper panel), while XLF has coincidentally outperformed the benchmark S&P 500 (SPY, lower panel) by 5%.  Expanding investor assets fuel outright price advances and relative outperformance versus the benchmark.  As long as Financials retains its Favored status, recent outright and relative strength is likely to continue.

Chart 1

Technology (XLK)

Economically sensitive Technology (XLK) is the SEAF Model’s second-ranked sector this week with a Ranking score of 10.  The green highlights in the upper panel of Chart 2 below show that Technology most recently moved back to Favored status, on Feb 13th, as XLK has coincidentally outperformed the benchmark S&P 500 (lower panel).  Bigger picture, however, the other highlights on the chart show that Technology has been frenetically oscillating back and forth between Favored and Avoid status since July 2024 (upper panel) while XLK has drifted sideways versus the S&P 500 (SPY, lower panel) throughout that period.  Technology typically leads the US broad market both higher and lower but these asset flows have been drifting sideways for the past 7-8 months, indicating investor indecision on upcoming market direction.

Chart 2

Communication Services: XLC

Economically sensitive Communication Services (XLC) is the SEAF Model’s third-ranked sector this week with a Ranking score of 12, down from a #1 ranking a week earlier.  The green highlights in the upper panel of Chart 3 below show that Communication Services initially moved into Favored status on Jan 21st and, with the exception of Feb 11th, has remained there since.  The lower panel shows that XLC has coincidentally outperformed the benchmark S&P 500 (SPY) by 6% during this period.  As long as Communication Services remains Favored by SEAF, XLC is likely to continue outperforming SPY.

Chart 3