Weekly-Updated PDF of all SEAF “Rainbow Charts:  Click the link below to download a PDF of this new addition to our research services.

Click Here For The SEAF Model Rainbow Charts Update
With The Election Over, “Risk On” Technology Jumps Right Back To The Top Of The SEAF Rankings
Conclusion, Investment Implications, Strategy

This week, the SEAF Model retains its overweight bias in Consumer Discretionary (XLY, since 10/28) and Financials (XLF, since 11/4)  and once again adds Technology (XLK) back to the top three SEAF Ranking scores.  A week earlier, Technology was the 2nd worst-ranked sector and the worst-ranked (with a score of 11) in the Trading category with a score of 11 as the market was apparently hedging its bets before the Presidential Election.  Now that the election is behind us, all of these sectors are considered to be “risk on” choices.  At the other end of the spectrum, the three worst-ranked sectors – Health Care (XLV), Utilities (XLU), and Consumer Staples (XLP) – are all considered to be “risk off”, defensive choices. 

After months of frenetic, nervous weekly changes in sector rotation, with hardly any sectors retaining a top ranking for more than a week or two, now that the election is behind us we may see a more normal sector rotation as is the case this week.

11-2-2024 Editor’s Note:  For most of this year, relative performance trends in the sector space have been very small, short-lived,  and erratic.  This week, for example, two of the top three SEAF Model scores are sectors that were not in the top three a week ago.  This indicates, even though the S&P 500 (SPX) is just 2.4% off its October 17th all-time high, that there is a lot of angst and market indecision underneath the surface of the market.  This is likely due to the upcoming election, and could also be affected by concerns about recently fluctuating interest rates.  No one knows for sure, and it doesn’t really matter why.  All that matters is that it’s here, it’s real, and it has been affecting market behavior this year.

Year-to-date (YTD), the three best performing Sector SPDR ETFs have been, in order, Communication Services (XLC), Financials (XLF), and Utilities (XLU).  Also year-to-date, the SEAF Model’s three most profitable overweight signals have been those very same three sectors.  This indicates the model is working precisely as it should in identifying which sectors to buy.  The issue has been that this year’s three best-performing sector ETFs have only outperformed SPY by relatively small amounts, while frequently (sometimes weekly) changing the order of which ones are outperforming the most.  They keep rotating, which indicates indecision.  Meanwhile, every other sector has underperformed the S&P 500.  So — at least so far this year — there has been very little relative outperformance for SEAF to capture, and whatever outperformance there has been has not been “sticky”.  But the reason we consistently follow a model like this is to be in the game when those larger and more lucrative relative outperformance trends emerge.

Year-to-date, the SEAF Model is currently trailing the S&P 500 by about 5%, but this has also been changing week to week as SEAF was outperforming SPY by 2% in September.  Meanwhile, however, SEAF has maintained a 3% lower maximum drawdown, a 2% lower standard deviation, and a 50% lower beta than the S&P 500.  In other words, even in a year that has not seen any significant and sustained sector relative outperformance trends, SEAF is still less risky than the market.  Moreover, SEAF has been outperforming its peers — ETFs that do some form of sector rotation — for most of this year and has outperformed them on an annualized basis since 2020.  And, from June 2018 through the end of last week, the SEAF Model’s annualized total return has been 8% better than the S&P 500 with a 5% smaller maximum drawdown.

So, don’t get distracted by the near term noise as the money hops from sector to sector, trying to catch the next “sticky” outperformance trend, but rather focus on the big picture.  The power and the advantage of data-drive investing is not getting knocked off of your long term game by short term conditions.

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 in All time periods.
  • Money aggressively moving back into Technology in All time periods.
  • Money continues to move into Consumer Discretionary in All 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.

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

Synopsis:  The latest data indicate a multi-timeframe trend of asset inflows into Technology and Financials.  This is where the money is currently going in the sector space.

The latest data indicate a multi-timeframe trend of asset outflows out of Health Care and Energy.  This is where the money is coming from.

 

Click Here For SEAF Model Performance Data Through Q3 2024