Tradelytics Macro Market Regime Vector

Objective

The Macro Market Regime Vector converts the market environment observed during the preceding 90 days into a standardized 32-dimensional numerical representation. Its purpose is not simply to determine whether equities are rising or falling, but to capture the broader combination of equity performance, market leadership, momentum, volatility, interest rates, credit conditions, inflation expectations, energy prices, gold and the U.S. dollar.

Once the current environment has been represented as a vector, it can be compared with historical 90-day environments contained in the backtest history. Historical periods with the smallest weighted distance represent regimes whose market conditions most closely resemble those facing the portfolio today.

Why These Market Symbols?

Symbols	Regime Information
SPY, QQQ, IWM	Broad U.S. equities, technology/growth leadership and small-cap participation. Relative QQQ-minus-SPY and IWM-minus-SPY returns indicate market leadership and breadth.
VIXY	Equity volatility and investor risk aversion. Return, slope and RSI help distinguish calm, deteriorating and stress regimes.
IEF, TLT, TIP	Intermediate Treasuries, long-duration Treasuries and inflation-protected bonds capture changes in rates, duration preference and inflation expectations.
HYG, LQD	High-yield and investment-grade credit reveal changes in credit risk, liquidity and risk appetite relative to government bonds and one another.
UUP	U.S. dollar strength can reflect monetary conditions, global risk aversion, financial conditions and pressure on multinational earnings and commodity prices.
USO	Oil captures energy-price, inflation, geopolitical and global-growth shocks.
GLD	Gold captures defensive demand, real-rate expectations, inflation concerns, currency confidence and geopolitical risk. GLD Return is now an active component of the 32-dimensional regime vector.

Metrics and Weighting

Each raw component is converted to a historical Z-score and capped between -3 and +3 standard deviations. This allows metrics with different natural scales, such as RSI and percentage return, to be compared consistently while limiting the influence of extreme observations.

Component Group	Weights	Reasoning
Equity Return / Trend / Risk	SPY Return 4.5%, Slope 4%, Sharpe 3%, Max Fall 3.5%, QQQ-SPY 5%, IWM-SPY 4.5%	Establishes the dominant equity regime while emphasizing technology/growth leadership, participation and market breadth.
RSI / Momentum	SPY 5.5%, QQQ 4.5%, IWM 3.5%	Captures the strength and maturity of equity momentum and overbought/oversold conditions across broad, growth and small-cap equities.
Weekly Stochastics (Level/Spread)	SPY 4.5%/3.5%, QQQ 4%/3%, IWM 2.5%, HYG 2.5%	Captures persistent intermediate-term momentum, trend participation and turning conditions.
Daily Stochastics (Level/Spread)	SPY 2.5%/2%, QQQ 2%/1.5%, IWM 1.5%, HYG 1.5%	Adds shorter-term positioning and momentum information without allowing daily market noise to dominate regime classification.
Volatility	VIXY Return 4%, Slope 3%, RSI 3%	Separates normal risk-taking environments from rising-volatility, de-risking and stress regimes.
Credit / Rates / Inflation	HYG-IEF Return 3%, HYG-LQD Return 3%, HYG Max Fall 2%, TLT-IEF Return 3%, TIP-IEF Return 3%	Measures credit stress, relative credit quality, duration behavior, rate expectations and inflation-sensitive Treasury performance.
Macro Cross-Assets	USO Return 2%, GLD Return 2.5%, UUP Return 2.5%	Adds energy/inflation, defensive real-asset and dollar/liquidity signals. Gold helps distinguish regimes in which equity and bond behavior alone may not fully capture defensive demand, real-rate expectations or geopolitical stress.

The 32 component weights total 100%. The vector stores each component as sqrt(weight) × normalized value. Consequently, when Euclidean distance is calculated, the squared difference of a component becomes weight × difference², giving the specified weights their intended influence on regime similarity.

32 Vector Components

#	Component	Weight
1	SPY Return	4.5%
2	SPY Slope	4.0%
3	SPY Sharpe	3.0%
4	SPY Max Fall	3.5%
5	QQQ - SPY Return	5.0%
6	IWM - SPY Return	4.5%
7	SPY RSI	5.5%
8	QQQ RSI	4.5%
9	IWM RSI	3.5%
10	SPY Weekly Stochastic Level	4.5%
11	SPY Weekly Stochastic Spread	3.5%
12	QQQ Weekly Stochastic Level	4.0%
13	QQQ Weekly Stochastic Spread	3.0%
14	IWM Weekly Stochastic Level	2.5%
15	HYG Weekly Stochastic Level	2.5%
16	SPY Daily Stochastic Level	2.5%
17	SPY Daily Stochastic Spread	2.0%
18	QQQ Daily Stochastic Level	2.0%
19	QQQ Daily Stochastic Spread	1.5%
20	IWM Daily Stochastic Level	1.5%
21	HYG Daily Stochastic Level	1.5%
22	VIXY Return	4.0%
23	VIXY Slope	3.0%
24	VIXY RSI	3.0%
25	HYG - IEF Return	3.0%
26	HYG - LQD Return	3.0%
27	HYG Max Fall	2.0%
28	TLT - IEF Return	3.0%
29	TIP - IEF Return	3.0%
30	USO Return	2.0%
31	GLD Return	2.5%
32	UUP Return	2.5%

How Historical Regime Similarity Is Determined

The most recent complete 32-component vector becomes the target regime. Every complete historical vector whose 90-day period ended before the target 90-day period began is eligible for comparison. This deliberately prevents overlap with the current regime.

A distance near zero therefore represents a highly similar regime. Historical observations are ranked by ascending distance, with the closest historical environments representing the strongest regime analogues. The exponential transformation converts distance into an intuitive score: identical vectors score 100, while increasingly different environments decline rapidly toward zero.

How This Improves Backtest Selection

The matched historical date identifies a 90-day period whose conditions immediately preceding that date resemble the 90 days preceding the current date. That date can then be used as an anchor into the backtest data. Instead of evaluating every historical segment equally, Tradelytics can examine the portfolio behavior following historically similar starting regimes.

For example, if the current combination of equity momentum, technology leadership, small-cap participation, volatility, credit conditions, Treasury behavior, oil, gold and dollar strength closely matches a historical 90-day window, the subsequent 90/180/270-day and longer backtest performance following that historical regime becomes particularly relevant.

This allows portfolio construction and strategy selection to be informed by conditional historical evidence—what happened after environments resembling the current one—rather than by unconditional long-term averages alone.

Model Version: MACRO_EQUITY_VECTOR_V6_32_WEIGHTED_NO_SPY_IR_WITH_GLD