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 The Top-Ranked Sector For The 12th Time Since Late April
Conclusion, Investment Implications, Strategy

The SEAF Model has retained the previous week’s long/overweight bias in economically sensitive (and typically offensive, “risk on”) Technology (XLK) and Communication Services (XLC), while adding cyclical Financials (XLF) to the top three best-ranked sectors.  Bigger picture, XLC and XLK are the two strongest sectors within the Select Sector SPDR ETFs, year to date.  At the other end of the spectrum, also economically sensitive Energy (XLE) is the worst-ranked sector this week and is also the second worst-ranked sector (after Health Care) year to date.

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 aggressively moving into Technology in All time periods.
  • Money aggressively moving into Communication Services in the Tactical and Strategic time periods.
  • Money aggressively moving into Health Care in the Trading time period.
  • Money aggressively moving out of  Communication Services and Utilities in the Trading time period.
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 indicate a multi-timeframe trend of asset outflows from the Health Care and Energy sectors.  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 5.  Technology has been one of the top three-ranked sectors for 16 of the past 17 weeks, beginning on Apr 24th, and has been the top-ranked sector 12 times during this period.  The lower panel of Chart 1 below shows that XLK has simultaneously outperformed the benchmark S&P 500 (SPY, lower panel) by 10.0%.  Year-to-date (YTD), according to sectorspdrs.com, XLK  is the second-best performing Sector SPDR ETF, rising by 14.3% while outperforming SPY by 4.6%. 

Chart 1

Financials (XLF)

Cyclical Financials (XLF) is the SEAF Model’s second-ranked sector this week with a Ranking score of 14, which is just barely in Favored territory.  Moreover, Chart 2 below shows that, outside of a quick, short-lived move in and out of Favored status between Jly 17th and Aug 1, this is the first time Financials has been Favored according to SEAF since Apr 24th.  Meanwhile, the lower panel shows that XLF has underperformed the benchmark S&P 500 (SPY) by 9% since Apr 22nd.  It would take a sustained period of Financials maintaining a Favored status to provide the buying pressure necessary to fuel a new trend of relative outperformance by XLF versus SPY.

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 15, also just barely in Favored territory.  The upper panel of Chart 3 below shows that Communication Services initially moved back into Favored status on August 1st, while the lower panel points out that the relative performance trend of XLC versus the benchmark S&P 500 (SPY) appears to be turning toward outperformance.  Year-to-date, according to sectorspdrs.com, XLC  is the best-performing Sector SPDR ETF, rising by 15.2% while outperforming the S&P 500 (SPY) by 5.5%, largely on the strength of Communication Services retaining Favored SEAF status between Apr 23rd and Jly 10th. 

Chart 3