dennisthiessenandClaude Opus 5
019ca1342a
The LLM-sourced capex/earnings observations carried 12+8 of 100 Warning points, so both pegged at 100 produced a Warning of 20.0 -- below the event study's 25.3 alarm threshold and still inside the "stable" band. The reading was arithmetically incapable of changing anything on screen, which is why refreshing it appeared to do nothing. They are now a qualitative overlay reported beside the scores rather than diluted into them. Calibrated against the 408 v2 sessions to 2026-07-24, reproduced offline from Alpaca + FRED; the harness matched the stored prod distribution exactly before any parameter was changed. State: - P3 used dd_pct * 5, reaching 100 at a 20% drawdown -- the 90th percentile of the observed distribution -- so 39/408 sessions sat at exactly 100 with no resolution left during the part of a selloff that matters most. Replaced with anchored breakpoints keeping headroom past the observed 36% maximum, blended 2:1 like P1/P2 instead of max(). P3's realized share of State falls from 65% to 40%, matching its nominal weight. - Credit level is now anchors-only. ICE capped FRED's BAMLH0A0HYM2 at a rolling 3-year window in April 2026, silently turning the 10-year percentile leg into a 3-year one that scored 20 points of stress at an OAS of 3.5 -- the level its own anchors call "mild". The anchors already encode the long-run distribution. Warning: - Added HY OAS 20-session widening (25%). The level is pinned at zero below the 3.5 anchor; its rate of change is not. - Divergence tapers to a 0.35 floor instead of a hard price_ret >= 0 gate, which zeroed the sensor through every decline: on 2026-07-24 the basket shed 10 points of participation in 20 sessions and Warning printed exactly 0. - The event study and the live monitor now share one sensor definition, so they cannot silently drift apart. Bands are per axis (State 20/50/80, Warning 20/40/60) with quadrant dividers at 50/40; v2 Warning never exceeded 64.9 against a shared 60, leaving that half of the quadrant unreachable. Realized shares: State 73/15/8/3%, Warning 69/20/8/3%. Snapshots now record credit_history_days and vix_history_days -- the percentile defect went unnoticed for months because nothing asserted the window the code claimed. Cutover: the first run rebuilds 400 sessions automatically; the Event Study job must be re-run, as its cached report self-invalidates on the methodology check. Co-Authored-By: Claude Opus 5 <noreply@anthropic.com>
169 lines
8.6 KiB
Markdown
169 lines
8.6 KiB
Markdown
# Regime Monitor v3 methodology
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The Regime Monitor is an observational AI/Tech risk thermometer. It does not
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gate entries, exits, position size, ranking, or alerts about individual setups.
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v3 supersedes v2. Every parameter below was calibrated against the 408 v2
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sessions ending 2026-07-24, reproduced offline from the same Alpaca and FRED
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inputs the live job uses; the reproduction matched the stored prod distribution
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exactly (State avg 22.6/22.7, p80 35.1, max 91.2, P3 pegged 39, W1 live 108).
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## What changed and why
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**Fundamentals left the score.** F1 (capex) and F3 (good-news-stock-down)
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carried 12 + 8 of 100 Warning points. Pegged at maximum stress they produced a
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Warning of exactly 20.0 — below the event study's 25.3 alarm threshold, and
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still inside the "stable" band. The sourced observation could not change any
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published conclusion, so refreshing it looked like it did nothing. They are now
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a qualitative overlay reported beside the scores. Capex also stopped scoring
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`raising` and `holding` identically at 0: `holding` is the deceleration case and
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now scores 50, so a boom no longer reads the same as a stall.
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**The drawdown sensor stopped saturating.** v2 used `dd_pct * 5`, reaching 100 at
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a 20% drawdown — the 90th percentile of the observed distribution. 39 of 408
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sessions sat at exactly 100 with no resolution left, and the price pillar showed
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the top band on 13.5% of sessions. v3 uses named anchors with headroom past the
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observed 36% maximum, and blends leader/confirm 2:1 as P1 and P2 already did
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instead of taking `max()`. P3's realized share of State falls from 65% to 40%,
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matching its nominal weight.
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**Warning gained a sensor with range.** The HY OAS *level* is pinned at zero
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below the 3.5 mild anchor (2.77 at the cutover), so credit contributed nothing
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in a calm tape. Its 20-session rate of change still does, and spread widening is
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a classic lead.
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**The credit percentile leg was removed.** Its reference window silently shrank
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from 10 years to 3 when ICE restricted the upstream series in April 2026, after
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which it scored 20 points of stress at a spread the same sensor's anchors call
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"mild". See Calibration below.
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**Breadth loss counts during declines.** v2's divergence gate was
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`price_ret >= 0`, so the sensor zeroed during every selloff. On 2026-07-24 the
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basket shed 10 points of participation in 20 sessions while SMH fell 11.9% and
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Warning printed exactly 0. v3 tapers to a floor instead: deterioration counts
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fully when price masks it (true divergence, the dangerous pre-top case) and at
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35% when price confirms it. Breadth *level* lives in State, but breadth
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*velocity* appears nowhere else, so this is not double counting.
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**Bands are per axis.** v2 Warning never exceeded 64.9 in 408 sessions while
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State reached 91.2, yet both used 30/60/80 with quadrant dividers at 60. The
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upper half of the Warning axis was unreachable.
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## Outputs
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**State** — current structural stress:
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- Price structure, 40%: `max(P1, P2, P3)`, one capped vote for correlated reads.
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- Fixed-basket breadth level, 25%.
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- HY option-adjusted credit spread level, 20%.
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- VIX level, 15%.
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**Warning** — deterioration and divergence:
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- Fixed-basket breadth divergence, 45%.
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- 60-session SMH/SPY relative-strength deterioration, 30%.
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- HY OAS 20-session widening, 25%.
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Combined, RSP/SPY (former F4), and the NVDA canary (former P6) do not enter v3.
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## Calibration
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P3 drawdown anchors, as (drawdown %, score): 0→0, 4→10, 8→25, 16→50, 28→78,
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40→100, flat outside. Credit impulse is relative (+35% over 20 sessions = 100)
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rather than absolute, because +0.5pp means something very different at an OAS of
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2.7 than at 8.0.
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Bands are round, meaning-anchored numbers, not percentile fits — percentile
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thresholds would drift on every rebuild and silently rewrite what past snapshots
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meant. Realized shares over the calibration window:
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| Axis | stable | watch | elevated | breaking | thresholds |
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|------|--------|-------|----------|----------|------------|
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| State | 73.3% | 15.0% | 8.3% | 3.4% | 20 / 50 / 80 |
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| Warning | 69.4% | 19.6% | 7.6% | 3.4% | 20 / 40 / 60 |
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Quadrant dividers sit at each axis's watch/elevated boundary: State 50,
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Warning 40.
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Scores renormalize over available fixed weights, but a band is published only at
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75% or greater coverage. Trend deltas are suppressed when the participating
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pillar set changes. Zero means ordinary/healthy; only stress contributes.
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Credit level is the named HY OAS anchors alone: 3.5 mild, 5.0 elevated, 7.0
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stressed, linear between, and nothing else. v2 blended those anchors at 70% with
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a 30% upper-tail percentile over a nominally 10-year window.
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That leg was removed rather than repaired. ICE restricted FRED to a rolling
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3-year window for `BAMLH0A0HYM2` in April 2026 — the series metadata states it
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outright ("Starting in April 2026, this series will only include 3 years of
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observations"), and an unbounded request returns the same 795 observations as a
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30-year one. The v2 percentile therefore ranked the current spread against three
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uniformly tight years (range 2.59–4.61 over the calibration window), which made
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it fire early and saturate absurdly: at an OAS of 3.50 — the level the anchors
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call *mild*, scoring zero stress — the blended sensor read 20.1, and the
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percentile leg pegged at 100 by an OAS of 4.5. Across the 408 sessions it
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roughly tripled the credit sensor's average (2.70 vs 1.00) and more than doubled
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its nonzero days (60 vs 27).
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The anchors already encode the long-run distribution as constants, so the
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percentile was a second, noisier estimate of the same thing. What it was
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genuinely reaching for — "unusual versus recent history" — is now W3 on the
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Warning axis, computed as a rate of change, which is where deterioration
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belongs. Removing it moved State's average by −0.4 and its maximum by −3.8, left
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Warning bit-identical, and did not shift any band threshold.
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A long-history alternative (`BAA10Y`, Fed-published, 7,712 observations back to
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1997) was considered and rejected: ranking an HY spread against investment-grade
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history is not a coherent statistic, and it would rescue a leg that is redundant
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anyway.
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Every snapshot now records `data_quality.credit_history_days` and
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`vix_history_days`. This defect was invisible for roughly three months because
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nothing asserted the window the code claimed; the spans make a future upstream
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truncation show up in the record instead of quietly reshaping a sensor.
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**Survivorship caveat.** The basket was frozen 2026-07-15 but the calibration
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window reaches back to 2024, so names were partly selected for having done well.
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Every distribution above inherits that bias. It is the same bias v2 carried, so
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the v2/v3 comparison is like-for-like, but the absolute band shares are
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optimistic.
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## Point-in-time record
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The first run under a new `METHODOLOGY` rebuilds the latest 400 trading sessions
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with sufficient sensor warm-up; routine runs thereafter insert/update only the
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latest trading date. The history API and main chart show only snapshots matching
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the current methodology, so a bump reseeds the series rather than splicing two
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formulas into one line.
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The fundamental overlay keeps its effective date (normally the next session after
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collection) and is never replayed backward, so a rebuild cannot stamp today's
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observation onto historical snapshots. Because the observation is stored in a
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single slot, a refresh replaces the previously effective record: the snapshot
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therefore reports the overlay as `pending` until the new effective date, and the
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live reading additionally carries `fundamental_context` so a just-collected
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observation is visible immediately rather than appearing to have done nothing.
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Each snapshot stores the fixed basket symbols, hash, and freeze date.
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Reconstructed history before that freeze date is retrospective/exploratory.
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## Warning study
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The study calls the outcome a **10% correction**, not a regime break. The first
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70% of sessions freezes the 80th-percentile warning threshold; alarm episodes are
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measured on the final 30%. Because v3 dropped fundamentals from the score, the
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study now measures exactly the live Warning score rather than a technical-only
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approximation of it, and both are computed from one shared sensor definition
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(`warning_sensor_scores`) so they cannot drift apart.
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A cached report is discarded when its methodology no longer matches, so the panel
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reverts to "not run yet" after a bump rather than showing stale numbers. **Re-run
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the Event Study job after cutting over to v3.**
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## Operator rule
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Quadrant alerts default off for new/reset configurations. When enabled they
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require fresh inputs, at least 75% coverage on both axes, two consecutive daily
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confirmations, hysteresis, and cooldown. Every alert states: **Risk thermometer —
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not a trade signal.**
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