"Living at risk is jumping off the cliff and building your wings on the way down." -- Ray Bradbury

NEW YORK ( TheStreet) -- The behavior of the yen, as seen in the CurrencyShares Japanese Yen Trust ( FXY - Get Report) in recent weeks is yet another signal that the global risk-on thesis is slowly losing its foundation.

For much of the first part of this year, yen weakness was the shining example of the quantitative easing "free lunch" and the global risk-on trade. At its peak in mid-May, the Nikkei , as seen in the iShares MSCI Japan Index ( EWJ - Get Report) and the WisdomTree Japan Hedged Equity Fund ( DXJ - Get Report), was up over 50% on the year while the yen was down over 16% against the dollar. It was widely believed at the time the yen would continue to weaken throughout the year, further supporting global risk markets.

Since May, though, a troubling divergence has emerged. Despite Japan's continuing efforts to weaken its currency, the yen has failed to hit new lows and the Nikkei has failed to reach new highs. In the weekly chart below you'll notice the higher lows in the yen and lower highs in the Nikkei.

Courtesy of StockCharts.com

At the same time, U.S. equity markets have continued to march higher with new all-time highs in the S&P 500. With the recent Janet Yellen nomination and expectations of any tapering of QE pushed well into next year, the U.S. dollar, as seen by the PowerShares DB US Dollar Index Bullish ( UUP - Get Report) has taken over as the weakest global currency (see chart below). In the "race to the bottom" for global currency depreciation, the Federal Reserve is back in the lead.

Courtesy of StockCharts.com

From a sentiment standpoint, the consensus opinion on the dollar-S&P today is similar to the yen-Nikkei in mid-May. That is to say, everyone is projecting the recent past into the future. This could setup a similar reversal where dollar strength is accompanied by S&P weakness.

What could be the catalyst for such a reversal?

Given how stretched U.S. equity markets and bullish sentiment are today, it wouldn't take much. To start with, if at its meeting this week the Fed expresses any concern over speculative risk in markets, this would not be received well.

Additionally, with expectations for tapering now pushed well into next year, any evidence that would push this timeline forward would be problematic. Lastly, if bond yields continue to fall here and deflationary pressures accelerate, that should also put pressure on the equity markets.

While the market is current assigning a low probability to these outcomes, that is often the case preceding turning points. Our ATAC models used for managing our mutual fund and separate accounts continue to believe that such a probability is higher than the market is anticipating.

As such, we are currently in long-duration bonds, favoring a more risk-off environment unless things dramatically change. For now, odds still favor something...unexpected.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.