On the chart above I am showing support and resistance levels created by the high and low of the five day opening range (5DOR) of the last three months. It is interesting to note that the panic selloff occured on a break of April's 5DOR low which was also the April low. In hindsight I admit I really missed that one. Even if the panic selloff was unexpected the break of the April low was a sign to lighten up and look short or buy protection.
Amazingly, the reaction off of the panic low stopped right at that same critical level. Then, even though May's 5DOR low, the panic low, was undercut the market did not close below it demonstrating significant support at the level.
It is beginning to look as though the dip back below the panic low is a bear trap. If the market makes it back above the June 5DOR high, also the June high to date, there is no resistance all the way back up to the April low of 1170.69. We could see a buying panic in that zone, but even if we don't there is strong reason to believe that 1170 will be revisited.
Thereafter, the May 5DOR high, also the May high, will be formidable resistance and the 1170 to 1205 zone will likely mark the high of any retracement whether it occurs in June, July or August. In my opinion, that will be an excellent area to take an initial short position should we get there.
Of course, all of that hinges on next week's action and whether or not the June 5DOR can be overcome, but I suspect that it will.
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