The bulls are trapped on an island, and that could mean more pressure ahead for stocks, says BofA

A steep market sell-off trapped bulls above a key level of resistance at the beginning of this week, according to one technician. That may have triggered a series of technical signs that imply near-term pain.

"We gapped up on March 9th, we gapped down on the 19th," Stephen Suttmeier, chief equity technical strategist at Bank of America Merrill Lynch, told CNBC's "Futures Now" on Tuesday. "We had six days of price action above those gaps where we trapped the bulls on this breakout."

He continued, "The bulls are trapped in this island up here. They become a natural source of selling pressure on rallies and what you could see is a dip down towards these moving averages."

For the Nasdaq 100, that means the index could retest the low of 6,640 set in early March and possibly head even further south toward its rising 100-day or 200-day moving average. A move to the 100-day average implies 4 percent downside from Tuesday's close and 9 percent downside to the 200-day.

It's a similar story on the S&P 500. Like the Nasdaq 100, the S&P 500 gapped higher earlier this month before taking a tumble on Monday. That stretch created another six-day island reversal on the benchmark index.

The technicals mean the S&P 500 could test its mid-February low of 2,645 at the least, says Suttmeier. More than that, it's possible the index will move as low as 2,532, a level not seen since October. A decline of that magnitude implies a nearly 7 percent decline from the close on Tuesday.

In good news for trapped bulls, the longer-run upward trend remains, even if we encounter more bumps in the shorter term, says Suttmeier.

"The moving averages [are] within the context of a larger uptrend at this point, that hasn't changed," he said. "It's just the market has gotten choppy near term and we have a failed breakout that we have to digest for the near term."

To escape the island, the level of fear in the market needs to increase, says Suttmeier — more fear would encourage selling, pushing markets into oversold territory, and prompting bulls to buy back in. To measure this, Suttmeier relies on the VXV/VIX ratio, which provides an indication of where volatility is headed.

"When the VXV/VIX goes below 1, the level indicates elevated fear in the market," he said. "This does need to go back down (maybe not go quite as low as it was in February) to say the bulls are back, we're oversold enough to get that good rally in the market."

The VXV/VIX ratio traded at roughly 1.02 on Tuesday after falling below 0.8 in February. The better-known VIX volatility index traded at nearly 19, but peaked above 50 during one of the largest sell-offs in early February.

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