Sector Rotation Shifting To A Defensive Alignment

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

Conclusion, Investment Implications, Strategy

This week, defensive Health Care (XLV) aggressively moved into the top spot according to the SEAF Model with a best-possible Ranking Score of 3.  Meanwhile, economically sensitive Energy and cyclical Financials (XLF) moved into the #2 and #3 rankings, replacing more offensive Consumer Discretionary (XLY) and Technology (XLK).  Health Care has been one of the top three sectors according to SEAF for five of the past six weeks, beginning on Oct 13th, indicating a subtle shift toward more defensive positioning over the past month as the S&P 500 negotiates psychological resistance at 7000.  At the other end of the spectrum, offensive Communication Services (XLC) and Consumer Discretionary (XLY) are the two worst-ranked sectors.

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 our SEAF Rainbow Charts and a heat map that provides more color and detail on where sector-related assets are going and where they are coming from across the 11 Sector SPDR ETFs, which together comprise the S&P 500.   Our Rainbow Charts highlight SEAF’s previous 12 months of Favored, Neutral, and Avoid rankings. 

From The Video: This Week’s Major Themes
  • Money is aggressively moving into Health Care and Energy in All time periods.
  • Money is aggressively moving into Financials in the Trading and Tactical time periods.
  • Money is aggressively moving out of Technology 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.

Data through 11-13-2025. Click the table above to enlarge

The latest data indicate a multi-timeframe trend of asset inflows into the Health Care and Energy 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 Consumer Discretionary 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 October 16th.  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).

Health Care (XLV)

Defensive Health Care (XLV) is the SEAF Model’s top-ranked sector this week with a Ranking score of 3, up from 8 a week earlier and at the best Ranking Score possible.  Health Care has been one of the top-three-ranked sectprs for five of the past six weeks, beginning on Oct 13th.  The upper panel of Chart 1 below shows that XLV has maintained a Favored SEAF status since Oct 2nd, while the lower panel shows that XLV has outperformed the benchmark S&P 500 (SPY) by 7% since Oct 29th.  Year-to-date, according to sectorspdrs.com, Health Care is the fifth-best-performing Sector SPDR ETF, rising by 10.4% while underperforming SPY by 4.1%. 

Chart 1

Energy (XLE)

Economically sensitive Energy (XLE) is the SEAF Model’s second-ranked sector this week with a Ranking score of 7, a big jump from 19 a week earlier.  This is the first time that Energy has had a favored status since Jun 20th, and prior to that Apr 1st.  The lower panel shows that XLE has outperformed the S&P 500 (SPY) by 7% since Oct 28th, suggesting that this recent surge in asset flows has already had a tangible effect on relative performance. Year-to-date (YTD), according to sectorspdrs.com, XLE is the fifth-worst-performing Sector SPDR ETF, rising by 7.4% while underperforming SPY by 7.1%.

Chart 2

Financials (XLF)

Cyclical Financials (XLF) is the SEAF Model’s third-ranked sector this week, with a Ranking score of 14.  As shown in the upper panel of Chart 3 below, this very atypically puts Financials in Neutral (yellow) rather than Favored status.  However, the lower panel shows that XLF has already outperformed the S&P 500 (SPY) by as much as 4% since the SEAF Model bottomed out at 33, deep in Avoid (red) status, on Oct 29th. Year-to-date (YTD), according to sectorspdrs.com, XLF is the sixth-best-performing Sector SPDR ETF, rising by 8.5% while underperforming SPY by 6.0%.

Chart 3