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
Risk-On Sectors Leading The Pack Again This Week
Conclusion, Investment Implications, Strategy

The SEAF Model retained the previous week’s generally market-positive, risk-on bias for this week by retaining Communication Services (XLC) and Consumer Discretionary (XLY) as overweights while adding cyclical Financials (XLF) to the top three.  Also noteworthy is that Technology (XLK), another risk-on sector, collapsed from the top-ranked sector just a week earlier to the third-worst-ranked sector this week, and is the worst-ranked sector this week in both the Trading and Tactical time periods.  Sector rotation has been atypically very inconsistent if not erratic this year, which we believe is at least partially due to the inconsistent messaging surrounding tariffs, a slowing economy, and threats to the independence of the Federal Reserve.  At the other end of the spectrum, economically sensitive Energy is the worst-ranked sector this 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 is aggressively moving into Communication Services and Financials in All time periods.
  • Money is aggressively moving into Consumer Discretionary in the Tactical time period.
  • Money is aggressively moving out of Technology in the Trading and Tactical 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 the Financials sector.  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 Technology sector.  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).

Communication Services  (XLC)

Economically sensitive Communication Services (XLC) is the SEAF Model’s top-ranked sector this week with a Ranking score of 6, up from 11 a week earlier.  The upper panel of Chart 3 below shows that Communication Services initially moved back into Favored status on August 1st, while the lower panel shows that XLC has coincidentally outperformed the benchmark S&P 500 (SPY) by 4%.  Year-to-date, according to sectorspdrs.com, XLC  is currently the best-performing Sector SPDR ETF, rising by 18.5% while outperforming the S&P 500 (SPY) by 8.3%. 

Table 1

Financials (XLF)

Cyclical Financials (XLF) is the SEAF Model’s second-ranked sector this week with a Ranking score of 7.  The rightmost upper panel of Chart 2 below shows that Financials most recently moved into Favored status on Aug 28th, while the lower panel shows that XLF has since started to outperform the benchmark S&P 500 (SPY).  The green highlights between both panels in the middle of the chart show that a sustained stay in Favored status between Jan 14th and Mar 6th fueled 4% of relative outperformance by XLF versus SPY, as these assets helped drive Financials higher. Year-to-date, according to sectorspdrs.com, XLF  is currently the fifth-best-performing Sector SPDR ETF, rising by 9.8% while underperforming the S&P 500 (SPY) by 0.4%. 

Chart 2

Consumer Discretionary: XLY

Cyclical Consumer Discretionary (XLY) is the SEAF Model’s third-best-ranked sector this week with a Ranking score of 13, down slightly from its score of 11 a week earlier.  The rightmost green highlights show that Consumer Discretionary moved back into Favored status on Sep 4th, after moving in and out of Favored two weeks earlier.  A sustained period of time in Favored status, as occurred between late October 2024 and Jan 10th while XLY outperformed SPY by 13%, would be necessary for recent relative outperformance by Consumer Discretionary to continue.  Year-to-date (YTD), according to sectorspdrs.com, XLY is the seventh-best (or fifth-worst) performing Sector SPDR ETF, rising by 4.8% while underperforming SPY by 5.4%. 

Chart 3