“The S&P 500 has been grinding steadily higher in 2013 as no real bearish catalyst has yet given investors reason enough to sell stocks.
For weeks, while Wall Street strategists have mused that this may be the beginning of a “Great Rotation” out of bonds and into equities, they’ve also warned that a correction is near.
Though we haven’t seen much in the way of selling in the equity market recently, the brief bouts of weakness we have seen in intraday trading have usually been brought about by spikes in the U.S. dollar, which has been mostly weak to start the year.
Today, BofA Merrill Lynch FX strategist Richard Cochinos says his team is seeing “the first signs of a reversal” in a note to the bank’s clients.
“Bottom line,” Cochinos writes, “Several indicators are calling for a risk correction. USD selling has reached previous reversion levels and greater buy-backs are to come.”
Cochinos first points to U.S. dollar selling by “real money” investors (i.e., pension funds, mutual funds, insurance companies, et al.), which has reached extreme levels recently – 1.8 standard deviations from the mean, to be exact….”
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