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Is it time to sell your bank stocks?

I’ve long said that Commonwealth Bank of Australia (ASX: CBA) shares have been heavily overvalued and that a correction could soon be in store. And it looks more likely that the time for that correction is now.

The bank’s shares have fallen a further 1.2% today after their 0.9% drop yesterday, taking its price to just $77.25 – merely a shadow of their recent highs. In fact, at this price they are sitting 8% below their 52-week high recorded in July. It only needs to fall a further 2% and it will officially be in correction territory.

Its major peers are in the same boat, too. Australia and New Zealand Banking Group (ASX: ANZ) is sitting 9.5% below its April peak, while National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have dropped 7.5% and 8%. Collectively, they have helped to drag the S&P/ASX 200 (INDEXASX: XJO) down just over 4% since its recent six-year high.

The selling of shares has increased recently as a result of the tumbling Aussie dollar and speculation regarding US interest rates, while underwhelming quarterly or full-year results and future dividend concerns could also partially explain the recent drop.

The Australian dollar fell below US90 cents earlier this week and some analysts are tipping it will decline further, possibly as low as US80 cents, as more global investors withdraw their cash from the Aussie economy to instead inject it back into the United States. This has been accentuated by speculation that the US Federal Reserve could be closer to raising interest rates than first thought. This speculation could be confirmed in the early hours of Thursday morning.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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