Weekly Update: Why Uncertainty Means More Sideways Movement

Joshua Martinez on October 31, 2022

Dear Tunnel Traders,

If there’s one thing the market just does not like, it’s uncertainty. And right now, we have plenty of it.

There’s uncertainty regarding company earnings, Federal Reserve monetary policy and even politics with the upcoming mid-term elections.

During times like these, it’s hard for the bulls or the bears to have much conviction about the market’s next direction.

And that means we have to adjust our expectations for what kind of market moves we are likely to see…

Join Us Tomorrow

Before we get to all of the details, I want to personally invite you to a special live presentation tomorrow at noon with my colleague and expert stock trader Ross Givens.

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Now, let’s cover the markets we’re watching this week…

As of today, Oct. 31, we are currently looking for opportunities in the following markets:

Nasdaq 100 Futures

The NQ monthly time frame is in a short term down trend. The market is making lower lows and lower highs. The market broke and closed below a strong support level, which promotes a continued bearish push. There is a down Fibonacci with an extension price point 7,546.50, about -15,510 ticks below the market. As long as the market stays below the short term down trend line, it will be a good idea to turn to the daily time frame and to look for high prices in the sell zone.

The NQ daily time frame is in a down channel. The market hit the top of the channel and is now making lower lows and lower highs pushing towards the bottom of the channel. The market has a down Fibonacci with an extension price point 9,595.25, about -6,966 ticks below the market. As long as the market stays below the down trend line, it will be a good idea to turn to the one hour time frame and to look for high prices in the sell zone.

The NQ one hour time frame is in an up channel. The market is making higher highs and higher lows. With the larger time frame showing the market is expected to push bearish. It will be a good idea to wait for the market to enter into the sell zone before looking for selling ideas.

Entry: Counter trend line break bearish in the sell zone.
Stop: In the buy zone above the entry.
Limit: 9,595.25

Once or if the market gives the one hour entry, it will be a good idea to turn to the five minute time frame and to look for Tunnel Trader short ideas towards the one hour price target.

Russel 2000 Futures

The RTY monthly time frame has entered into a small sideways range just above the back side of the old down trend line. The market is just above support, which could push the market back up towards resistance price point 1,905.00, about +516 ticks above the market. It will be a good idea to turn to the daily time frame to look for a bullish trend with a low price in the buy zone.

The RTY daily time frame is in a consolidation range. The market hit the bottom of the range and had a bullish push. The market broke and closed above the counter trend line bullish, giving signs a bullish trend could form to the top of the range. As long as the market stays above the daily support, it will be a good idea to turn to the one hour time frame and to look for low prices in the buy zone towards 1,905.00, the monthly future resistance about +1,285 ticks above the market.

The RTY one hour time frame is in an up channel. The market is near the top of the channel. It will be a good idea to wait for the market to form a low price at a known level of U-turn near the bottom of the channel or above the top of the channel before looking for long ideas.

Entry: Counter trend line break bullish near the bottom of the channel or above the top of the channel.
Stop: In the sell zone below the entry.
Limit: If entry is near the bottom of the channel, the limit will be just below the top of the channel. If the entry is above the channel, the limit is 1,905.00.

Once or if the market gives the entry, it will be a good idea to turn to the five minute time frame and look for Tunnel Trader long ideas towards the one hour price target.

S&P 500 Futures

The ES monthly time frame is in a short term down trend. The market is making lower lows and lower highs. The market closed below a strong support level, which provides research to expect a continued bearish push. There is a down Fibonacci with an extension price point 3,026.00, about -2,743 ticks below the market. As long as the market stays below the short term down trend line, it will be a good idea to turn to the daily time frame and to look for a high price in the sell zone.

The ES daily time frame is in a down channel. The market hit the top of the channel and created a bearish trend heading towards the bottom of the channel near the monthly down Fibonacci price point 3,026.00, about -2,743 ticks below the market. It will be a good idea to turn to the one hour time frame and to look for high prices in the sell zone for selling ideas towards the daily down Fibonacci price point 3,199.00, about -2,211 ticks below the market.

The ES one hour time frame is in a short term up channel. The larger time frame shows the sellers can bring the market down breaking the short term one hour time frame up channel. It will be a good idea to wait for the one hour time frame to enter into the sell zone, below the up channel, before looking for selling ideas.

Entry: Counter trend line break bearish below the up channel.
Stop: In the buy zone above the entry.
Limit: 3,199.00

Once or if the market gives the one hour entry, and as long as the market stays in the sell zone below the up channel, it will be a good idea to turn to the five minute time frame and look for Tunnel Trader short ideas towards the one hour price target.

Crude Oil Futures

The CL monthly time frame is in an up channel. The market is near the bottom of the channel showing signs of pushing bullish towards the top of the channel price point 147.27, about +6,355 ticks above the market. It will be a good idea to turn to the daily time frame and to look for low prices in the buy zone.

The CL daily time frame broke the short term down trend line and has entered into the buy zone. The market has an up Fibonacci with an extension price point 104.39, about +1,726 ticks above the market. As long as the market stays in the buy zone above the short term down trend line, it will be a good idea to turn to the one hour time frame and to look for low prices in the buy zone.

The CL one hour time frame is in up channel. It will be a good idea to look for long ideas near the bottom of bullish channel.

Entry: Counter trend line break bullish near the bottom of the channel.
Stop: In the sell zone, below the entry.
Limit: 90.67

As long as the market stays above the bottom of the channel, it will be a good idea to turn to the five minute time frame and to look for Tunnel Trader long ideas towards the one hour price target.

We are currently out of the following markets and waiting for entry opportunities:

BTC Futures

The BTC monthly time frame is in a long term bullish trend. The market is moving from a high price towards a future low price. The market has a down Gartley Fibonacci extension price point 10,300.00, which is near the up trend line. If the market hits the down Gartley Fibonacci extension, it is expected we’ll see a bullish U-turn towards 76,555.00, which is the monthly up Fibonacci extension. It will be a good idea to turn to the daily time frame and to wait for the market to break the down daily trend line before looking for long ideas.

The BTC daily time frame is in a down trend. The market is making lower lows and lower highs. There is a down Fibonacci extension below the market price point 11,060.00, about -1,629 ticks below the market. I am out of the market waiting for the market to hit the down Fibonacci extension. Then, I will look for the bullish reversal towards the monthly Fibonacci extension.

Performance Spotlight

As noted above, uncertainty is running high right now…

We are in the middle of an earnings season that is showing mixed results from different market sectors.

The market is looking forward to Wednesday’s interest-rate announcement from the Federal Reserve.

And investors are also bracing for the mid-term election results, which could mean policy changes in Washington DC that could affect the markets.

With so much on the horizon, I’m expecting the markets to move sideways for the next few weeks, at least.

To show you why I say that, let’s look at the Russell 2000 (RTY) futures market…

***Daily Chart of Russell 2000 (RTY) Futures — Source: TradingView***

As you can see in the daily chart above, RTY was able to break through two short term down trend lines recently.

It broke into the buy zone, and we have been looking for bullish trades in this market.

However, there is a monthly future resistance level looming overhead at 1,905.00 that should keep the RTY within its sideways range.

Few Signs of Conviction

Typically, when we get a counter trend line break, we’ll look to play a continued move in the direction of the overall trend.

But right now, with plenty of headline risk on the horizon, both bulls and bears are showing few signs of conviction.

In other words, everyone is waiting to see what is going to happen with earnings, interest rates and elections before betting big on the next market move.

***Monthly Chart of Russell 2000 (RTY) Futures — Source: TradingView***

Furthermore, the markets just closed out their October monthly candlesticks at the end of today’s session.

And RTY did not close above monthly resistance at 1,905.00.

What that means is that we won’t be able to have much conviction in RTY’s long term direction for at least a month — when the November candle closes.

Stay Nimble

If RTY does break above that level at some point during November, we can and will play the market to the upside.

But we really want to avoid getting caught long on a false breakout…

For example, back in August, we saw RTY start to break out. By the end of the month, however, the market had dropped right back within its sideways range again.

Therefore, it will be extremely important to stay nimble going forward while uncertainty remains high.

Once we are through the upcoming events, we can take a longer term look at the major indexes.

But for now, we will expect further sideways consolidation…