Year-end high and low as a four-state regime filter

One comparison at year-end

The procedure classifies conditions once a year, on the last trading session, by comparing the current calendar year's high and low with the preceding year's high and low. That single reading is the year-end-review. The workflow does not monitor the tape inside the year.

The label that comes out is an annual-range-regime: a four-way market-state reading used for a long-horizon allocation decision.

Four outcomes from the same two ranges

A rising-range-state is a year whose high and low both stand above the prior year's high and low. That rising tape is treated as favorable for committing capital.

A stagnant-range-state is a year whose high is below the prior high while its low remains above the prior low. New capital is withheld, but money already allocated may stay invested.

A contracting-range-state is a year whose high and low both stand below the prior year's high and low. That falling tape is the cue to liquidate equity holdings.

A washout-then-expansion is a year that prints a higher high and a lower low, with the lower low occurring before the higher high. That sequence is treated as a completed correction, not a new downtrend, and as favorable for committing capital.

Bills-when-out after equities are closed

When the falling-market label takes the portfolio out of equities, idle capital is parked in short-term government bills rather than left uninvested. That companion cash rule is bills-when-out. It belongs with the contracting-range-state that closes equity exposure, not with the stagnant-range-state that still allows existing holdings to remain.

What the historical run flagged

A historical run of the same annual high and low classification on a broad US equity index from 1958 through 2001 flagged drawdowns in 1975 and, to a lesser extent, in 1963 and 1971.