BofA: 'Don't Lose Sight Of The Bigger Picture ... Stay Bearish'

BofA Merrill Lynch technical strategist MacNeil Curry is out with a pretty pessimistic note to begin the week.

Curry's message to the bank's clients is that a coming bounce in the stock market following the first real sell-off of the year will probably prove to be only temporary. He notes that other risky assets, like European stocks and peripheral government debt, have already taken a turn down.

Below are the key paragraphs from Curry's note:

While the evidence warns of the potential for new cycle highs in US risk, don’t lose sight of the bigger picture.

While US equities could see a push to new cycle highs on the back a renewed resurgence in risk, the larger body of evidence says that this is a VERY late stage advance for ESH3/S&P500. Gasoline prices and sentiment are particularly worthy of note as both are at levels that have repeatedly coincided with medium term highs. Historically, RBOB moves above $3.50 have resulted in S&P500 tops, while sentiment (using DSI as a proxy) has reached relative extremes from which the market has often turned lower.

Commodities & European risk markets have already turned trend. Stay bearish. Bunds to benefit. Waiting for USDSEK

While US equities could see new highs, they are the exception, not the rule in the risk world. Indeed, both commodity markets (specifically Oil and Copper) and European risk markets (peripheral debt and Euro Stoxx) have already turned medium term bearish. Going forward, bounces in these assets should be seen as selling opportunities. Meanwhile Bunds will continue to outperform as yields remain on track to test and likely break their 2012 lows of 1.256%/1.123%. Finally, we continue to watch $/SEK as a rebound in risk sentiment should take the pair down into the 6.4086/6.3558 support zone. This would be our opportunity to go long for 6.8156 and potentially beyond.

We've noted since early January that market sentiment is at extreme levels.

Below is an updated chart via Curry (click to enlarge):

Below is a chart showing the other dynamic Curry notes – gas prices versus stock prices:

Last week, when we asked strategists, economists, and traders across Wall Street which charts worry them most right now, several of them sent us similar indicators.