The Nifty Fifty & The Rollover Syndrome

A deep dive into the striking parallels of the current US equity market to the 1970s Nifty Fifty

In last Saturday’s note Bullish on Brazil Part 2 + New Thoughts, I referred in the parting thoughts to the 1970s Nifty Fifty phenomenon and a bearish technical pattern that seems to work well in identifying the final rollover of the broader market and the “one decision” stocks that were the last Generals to fall as the great bear market of 1973-74 unfolded. As a teaser, I suggested that the French CAC index and EURJPY & CADJPY crosses have exhibited this pattern, but it is starting to turn up all over.

This note will explore the 1970s Nifty Fifty and this topping formation as a possible roadmap for today. Specifically, I am looking at some key leadership reversals in the context of narrowing breadth that has characterized the US equity rally of 2023-24. Indeed, we have witnessed a rally far beyond anything I imagined in the summer of 2022 when I penned All Clear Echo on Twitter — a rally reflexively fueled by passive flows into Momentum and Size factors that have created conditions comparable to the 1970s Nifty Fifty, only much narrower.

"Tops are a process, bottoms are an event."

In a nutshell, the key points of the topping formation and subsequent rollover — a phenomenon I am calling the Rollover Syndrome — boil down to: