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
Sector Rotation Turned Back To A Strong Risk-On Last Week
Conclusion, Investment Implications, Strategy

The SEAF Model retained the previous two weeks’ mostly-positive, risk-on bias this week by retaining Technology (XLK) and adding Communication Services (XLC), the two strongest sectors year to date, and adding cyclical Financials (XLF).   Note that Technology and Communication Services had 1s and 2s across all three time frames, and Financials had all 3s.  This means all  the aggressive buying through last week was exclusive to these three sectors.  At the other end of the spectrum, defensive Health Care (XLV), Consumer Staples (XLP), and Utilities (XLU) had the worst SEAF Ranking scores, which means that — through the end of last week — there is an atypically strong Risk On consensus on US stocks.

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 Technology, Communication Services, and Financials in All time periods.
  • Money is aggressively moving out of Health Care in All time periods.
  • Money is aggressively moving out of Utilities 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 Technology and Communication Services sectors.  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 Utilities 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).

Technology: XLK

Economically sensitive Technology (XLK) is once again the SEAF Model’s top-ranked sector this week with a Ranking score of 4, a much stronger reading than the 10 Ranking a week earlier.  Technology has been one of the top three-ranked sectors for 19 of the past 22 weeks beginning on Apr 24th, and has been the top-ranked sector 15 times during this period.  Meanwhile, Chart 1 below shows that XLK has coincidentally outperformed the benchmark S&P 500 (SPY, lower panel) by 12%.  Year-to-date (YTD), according to sectorspdrs.com, XLK is the second-best-performing Sector SPDR ETF, rising by 20.0% while outperforming SPY by 6.7%. 

Chart 1

Communication Services  (XLC)

Economically sensitive Communication Services (XLC) is the SEAF Model’s second-ranked sector this week with a Ranking score of 5.  Chart 2 below shows that Communication Services initially moved back into Favored status on August 1st, and has been one of the top-three-ranked sectors according to SEAF for five of the past seven weeks since Aug 11th while XLC has coincidentally outperformed the benchmark S&P 500 (SPY) by 7%.  Year-to-date, according to sectorspdrs.com, XLC  is currently the best-performing Sector SPDR ETF, rising by 23.3% while outperforming the S&P 500 (SPY) by 10.0%. 

Chart 2

Financials (XLF)

Cyclical Financials (XLF) is the SEAF Model’s third-ranked sector this week with a Ranking score of 9.  Financials has been among the top four-ranked sectors for six of the past ten weeks since July 21st, according to SEAF.  Chart 3 below shows Financials moved back into Favored status on Aug 28th and, with the exception of a few days around Sep 10th, have remained Favored since.  Although XLF has not yet responded with relative outperformance versus the benchmark S&P 500 (SPY, lower panel), the longer that Financials remain Favored, the more likely XLF will respond with relative outperformance versus SPY in the upcoming weeks, as previously occurred between Jan 14th and Mar 6th.  Year-to-date, according to sectorspdrs.com, XLF is currently the fourth-best-performing Sector SPDR ETF, rising by 12.3% while underperforming the S&P 500 (SPY) by 1.1%. 

Chart 3