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 This Week’s SEAF Model “Rainbow Charts” Update
Technology Ranked #1 For 6th Consecutive Week
Conclusion, Investment Implications, Strategy

The SEAF Model graphic below shows that economically sensitive Technology (XLK), Communication Services (XLC), and Energy (XLE) are the first, second, and third-ranked sectors according to SEAF this week.  XLK and XLC are generally seen as “risk on” sectors that are indicative of risk appetite, while XLE is largely driven by the price of crude oil.  XLE’s current Ranking score of 14 is just barely in Favored territory and is being suppressed by the strong outflows from earlier this quarter.  Also note that Energy and Consumer Discretionary currently share the same Ranking score of 14, with the edge being given to Energy due to stronger asset inflows in the Trading (weekly) timeframe.   At the other end of the spectrum, cyclical Financials (XLF) and defensive Health Care (XLV) continue to be the two worst-ranked sectors for the third consecutive week.  

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” highlighting SEAF’s past 12 months of Favored, Neutral, or Avoid rankings. 

From The Video: This Week’s Major Themes
  • Money continues to aggressively move into Technology and Communication Services in All time periods.
  • Money aggressively moving into Energy in the Trading and Tactical time periods.
  • Money aggressively moving out of Health Care 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 where the money is going and to avoid the sectors where the money is coming out.  

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 Technology and Communication Services.  This is where the money is currently going in the sector space.

The latest data also indicates a multi-timeframe trend of asset outflows from Financials and Health Care.  This is where the money is coming from.

SEAF Heat Map

The SEAF Heat Map provides additional insight into the flows of the 11 Sector ETFs. Each time frame is independent, meaning the color spectrum for one period does not affect another. For example, the strongest inflow (dark green) for the trading week is separate from the strongest inflow for the tactical month.

The heat map visually represents the spectrum of inflows and outflows, with green indicating inflows and red indicating outflows. The more extreme the flow, the darker the corresponding color—deep green for strong inflows and deep red for strong outflows. Flows closer to yellow indicate minimal percentage change.

This tool serves as an additional layer of information to help investors not only identify where sector flows are moving but also gauge the relative strength of those flows compared to their peers.

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).

Technology: XLK

Economically sensitive Technology (XLK) is again the SEAF Model’s top-ranked sector this week with a Ranking score of 4.  Technology has been SEAF’s top-ranked sector for seven of the past eight weeks.  Chart 1 below shows that Technology moved back into top-three status according to SEAF on Apr 24th (upper panel) for the first time since Feb 20th, and has coincidentally outperformed the S&P 500 (SPY, lower panel) by 8.0% during this period.  As long as Technology retains its current Favored status, recent outright strength and relative outperformance versus SPY are likely to continue.

Chart 1

Communication Services (XLC)

Economically sensitive Communication Services is the SEAF Model’s second-ranked sector this week with a Ranking score of 7.  Communication Services has been a top-three-ranked sector according to SEAF for seven of the past nine weeks.  Chart 2 below shows that Communication Services initially moved into Favored status on Apr 23rd  (upper panel) while XLC has slightly outperformed the S&P 500 (SPY, lower panel) by 1.0%.  Although Communication Services has not yet outperformed by a meaningful degree, history suggests that the longer this sector retains its current Favored status, the more likely that XLC will generate a significant period of relative outperformance versus SPY.

   Chart 2

Energy (XLE)

Economically Sensitive Energy is the SEAF Model’s third-ranked sector this week with a Ranking score of 14, which is right at the weak edge of the model’s Favored status and is tied in ranking with Consumer Discretionary. When a SEAF sector is tied in overall ranking, the best Trading (week) signal takes precedence as it is the “newest” money into the model. For the second consecutive week, Energy has been the top sector in the Trading time period. This is also the first time Energy has cracked the top 3 in overall Ranking score since March 17th.  The overall ranking of Energy is being tempered by strong outflows in the Strategic (quarterly) time period and, with several major overhead resistance levels to deal with in XLE, Energy will need continued, sustained strong inflows to continue this emerging trend.

 Chart 3