'Crash watch:' Bank of America breaks down why it's still too early to turn bullish - and says where to put your money as market upheaval rages on

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• It's still too soon to flip from being bearish to bullish, according to investment strategists Bank of America Merrill Lynch.
• They identified signs that the worst may not be over for the stock market, as well as other vulnerable pockets that could create more volatility.
• They also recommended trades for investors who share their bearish position.

If you're thinking the worst is over for global markets, think again, says Bank of America Merrill Lynch.

This past week proved especially tumultuous for US stocks as the S&P 500 erased its gains for the year and tumbled into a correction at its lows. The tech-heavy Nasdaq fared even worse, and this week's selling put the index on track for its worst October in a decade.

"It's (almost) officially a global equity bear market," Michael Hartnett, the firm's chief investment strategist, said in a client note.

He's alluding to the selling that plagued international markets months before US stocks peaked in September. Not only is he flagging the possibility of more losses in stocks, he's on "crash watch" for other corners of global markets that he considers to be vulnerable.

Starting with stocks, Hartnett is telling clients that it's too soon to flip from bearish to bullish based on what he calls the 'three Ps:'

• Peak positioning: As the sell-off gathered steam earlier this month, Hartnett pointed out that his firm's Bull & Bear indicator had swung into bearish territory.
  
  The indicator previously served as a contrarian buy signal for investors who wanted to be greedy when their peers were fearful. This time, however, some of the most oversold sectors like homebuilding and semiconductors have not yet bounced. According to Hartnett, this suggests investors are still worried about a recession or some other systemic financial event.
  
  
• Peak profits: This has been a market-wide concern partly because of the anticipated effects of US tariffs on Chinese goods and rising interest rates. According to Hartnett, oil prices and wages are "moving in the wrong direction" (i.e. higher) for profit margins.
• Peak policy stimulus: Hartnett turned to China, where he has yet to see the impact of its central bank's efforts to stimulate the economy.
  
  He also quipped that the panic in markets is unlikely to cease until central banks themselves start showing signs of unease. And so far, the Federal Reserve appears unfazed by the volatility in stocks. "Until then," Hartnett said, "sell rallies in risk, cash over bonds and stocks, high quality over highly leveraged assets."

His preference for safety over risk can be explained by some of the corners of the global market where he's on "crash watch."

Chief among them are the $45 trillion of assets traded outside the regulated confines of the mainstream financial system through so-called shadow banking. Hartnett estimated that 72% of these assets - invested in mutual funds, bank-loan funds, credit hedge funds, and bond exchange-traded funds - are vulnerable to forced selling.

In addition, he flagged the $4.2 trillion in outstanding commercial real estate debt.

Even though these exist outside the stock market, they could all contribute to higher volatility. To that end, he offered a number of trades for investors like himself with a bearish stance: long gold, long volatility, long cash, and short corporate bonds.