Believe it or not, the QQQQ almost printed a narrow-range NR7 day on Friday. It didn’t expand its range until very late in the day. So, what was the hold up? Why a gap, of course. Here is a 60-minute QQQQ chart going back to June (click to enlarge):

The red box and arrow show the narrow gap that had persisted for over a month. The blue arrow points to the Q’s closing the gap permanently on Friday afternoon after a two-day struggle.

In the process of filling this gap, the market has worked itself into a short-term overbought frenzy. So, is that it? Has the gap-filling mission been completed freeing the market to get back to bearish business? Or has the market gone into bull-mode where it just stampedes right through overbought conditions? Film at 11.

I believe this rally was birthed by the “double-dip recessions are extremely rare” meme. I don’t know who birthed that meme, but I do remember it popping up just before the bottom in late June. Has that meme taken up residence in the brains of large investors? Are they now in dip-buying mode? So far, it certainly looks that way, but we won’t know for sure until we see how the market behaves on the next dip.

The Advance/Decline line broke above its June peak on Thursday. See the red arrow on the chart, which has the A/D line in the lower panel and the SPX in the upper panel (click to enlarge):

The market made a top in January, and then plunged on the first episode of the sovereign-debt crisis. If you look at point “A” on the chart, you will see that the A/D line crossed above its January peak (blue horizontal line) on March 1st (blue vertical line). And that was a solid two weeks before the SPX surpassed its peak (purple horizontal line) at point “B” on March 16th (vertical purple line).

This breadth breakout will likely prove to be a bullish development as it was back in March.

The demise of Europe has been greatly exaggerated. SPX futures rallied 15 points overnight after Eurostat released strong data.

Wednesday morning in the comments, I mentioned that a triangle was forming on the SPX 60-minute chart (click chart to enlarge):

And sure enough, the “Bernanke Tightening Talk” plunge in the afternoon bounced right at the lower line. How do you like that?

According to the textbook, there is only a 25% chance that the market can reverse off of this symmetrical triangle.

On Tuesday afternoon in the comments, I started to discuss the possibility of a reversal day. And now I have added a new Reversal Day page which illustrates the criteria that I use, such as: gap-filling late in the day, breadth crossing the zero line, volume increasing, etc.