Introduction
For the past year or so, we have been getting numerous requests from our subscribers to publish all 11 of our SEAF Model “Rainbow Charts” on a regular basis, in addition to the three or four selected Rainbow Charts that we include every week in our regular Monday Beyond The SEAF Model Report and accompanying video. We will now be publishing these updated charts via a chart book/slide deck every Monday as a new component of the Beyond The SEAF Model Report. We are publishing this new chart book as a Special Report today to draw your attention to it and to explain how to interpret these unique proprietary charts.
For those who are not familiar with our SEAF Model (SEAF®), it is a completely data‐driven sector rotation model that we have created over the past decade. SEAF is an acronym for Sector ETF Asset Flows. The SEAF Model was created to quantitatively identify long/overweight opportunities in US market sectors by “following the money” around the 11 Select Sector SPDR ETFs, which together comprise the S&P 500, in multiple time frames.
The recommended way to utilize the model, and how it was backtested, is to trade a predetermined amount of assets with an equal allocation of those assets across the top three SEAF Rankings, which could be anywhere between 3 (best) and 33 (worst). The model is updated once per week, on the weekend, and any rebalancing takes place on the market opening the following Monday morning. The SEAF Model is always fully invested in the market, providing investors with a dynamic alternative to the traditional buy‐and‐hold portion of a portfolio.
The charts in this new chart book display the SEAF Model Ranking Scores over the previous 12 months, identifying the strongest and weakest sectors of the S&P 500 based on data through the previous week. Note that these rankings tend to trend, from Favored to Avoid Rankings and back again, based completely on the assets moving into and out of these 11 ETFs.
The upper panel of the charts displays these weekly scores within the context of being:
• Favored (a Ranking of 3‐15, green),
• Neutral (a ranking of 16‐24, yellow), or
• Avoid ( a ranking of 25‐33, red)
and displays the trend of asset flows as the money has moved in and out of these sectors over the past 12 months. The lower panel of these charts plots the corresponding weekly relative performance of that particular sector versus the benchmark S&P 500 (SPY).