Market Regime Scoring: Green, Yellow, Red — and What It Means
Market Regime is the first and most important level of the Weekly Signal framework. The composite score (0-100) classifies the current environment into three zones: Green (80+) means broad risk-on conditions where full allocation is appropriate, Yellow (50-79) signals caution where position sizes should shrink and hedges increase, and Red (below 50) indicates regime change where capital preservation overrides return-seeking. Regime shifts don't happen every week — most of the time the score drifts within a zone. The critical moments are the transitions: Green→Yellow and Yellow→Red are the signals that trigger portfolio-level changes.
Why Regime Matters More Than Stock-Picking
The single most important factor in portfolio performance is not which stocks you own — it's whether you're positioned correctly for the market environment. Being 100% long high-beta AI stocks in a Green regime is the right move. Being 100% long the same stocks in a Red regime is how you lose 30% in three months.
The Weekly Signal composite score quantifies this. It takes the subjective question "how does the market feel?" and replaces it with a weighted, transparent, reproducible number derived from nine quantitative dimensions.
How Regime Affects Allocation
Green (80+): Full allocation. Maximum exposure to high-conviction positions. Minimal hedging. This is the environment where the AI Barbell runs at full tilt — long infrastructure, short disrupted SaaS.
Yellow (50-79): Reduced allocation. Trim positions by 20-30%. Add puts on vulnerable positions. Tighten stops. This is not a sell-everything signal — it's a "lean defensive" signal.
Red (0-49): Capital preservation mode. Raise cash to 40-60%. Close high-beta longs. Shift to Gold, TLT, and defensive positioning. This is where the Derivatives portfolio (cash-secured puts, covered calls) becomes the primary income vehicle.