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Financials (XLF), Consumer Discretionary (XLY) Remain Top SEAF Model Scores
Conclusion, Investment Implications, Strategy

Financials (XLF) and Consumer Discretionary (XLY) continue to maintain their late October/early November top-three SEAF Model rankings while the model added Industrials (XLI) as a new Favored sector this week (although it has been lingering among the top-ranked sectors for more than a month).  At the other end of the spectrum, typically offensive Technology (XLK) and defensive Health Care (XLV) are the two worst-ranked sectors 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 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 and Consumer Discretionary in All time periods.
  • Money remaining firm in Industrials in All time periods.
  • Money continues to aggressively move 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 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:  For the fourth consecutive week, the latest data indicate a multi-timeframe trend of asset inflows into Consumer Discretionary 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 Technology.  This is where the money is coming from.

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).

Financials: XLF

Cyclical Financials (XLF) is again the SEAF Model’s top-ranked sector this week (4th consecutive week) with a Ranking score of 3, which is the highest score possible.  The green highlights in the upper panel of Chart 1 below show that Financials moved into Favored status according to SEAF on Oct 14th, while the lower panel shows that XLF has coincidentally outperformed the S&P 500 (SPY) by 5%.  As long as Financials maintains its Favored ranking according to SEAF, the more relative outperformance by XLF we are likely to see.

Chart 1

Consumer Discretionary: XLY

Cyclical Consumer Discretionary (XLY) is the SEAF Model’s second-best-ranked sector this week with a Ranking score of 6.  This is the highest/best SEAF Ranking for Consumer Discretionary since February.  The green highlights in Chart 2 below show that Consumer Discretionary initially moved into Favored status on Oct 24th while the lower panel shows that XLY has coincidentally outperformed the S&P 500 (SPY) by 8%.  

Chart 2

Industrials: XLI

Economically sensitive Industrials (XLI) is the SEAF Model’s third best-ranked sector this week with a Ranking score of 9.  Industrials has actually been lingering near the top of the list, ranking as the third or fourth-best sector, for the past five weeks.  The green highlights in Chart 3 below show that Industrials initially moved into Favored status on Oct 31st while the lower panel shows that XLI has coincidentally outperformed the S&P 500 (SPY) by 2%. 

Chart 3