ABSTRACT
Consolidation Formations An army, which has pushed forward too rapidly, penetrated far into enemy territory, suffered casualties, and outrun its supplies, must halt eventually, perhaps retreat a bit to a more easily defended position and dig in, bring up replacements, and establish a strong base from which later to launch a new attack. In the military parlance with which we have all become more or less familiar these past few years, that process is known as consolidating one’s gains. Although it will not do to overwork the analogy, there is much in the action of the stock market that may be compared to a military campaign. When a stock pushes ahead (up or down) too fast, it reaches a point at which the forces that produced its move are exhausted. Then it either reverses its trend (in a Major or Intermediate sense), reacts to a good Support Level, or Consolidates its position, in some sort of “sideways” chart pattern composed of Minor Fluctuations, until it has caught up with itself, so to speak, and is ready to go on again. (For illustrations in this chapter, see Figures 11.1 through 11.18.)
We already have had occasion to refer to Consolidation Formations in our study of Symmetrical Triangles and Rectangles. We saw how those two chart formations might either reverse the previous trend or Consolidate it in preparation for its continuation. We noted that about three out of four Symmetrical Triangles will turn out to be Consolidations rather than Reversals-and Rectangles in about the same proportion. Even a Flat-Topped Broadening Pattern, constructed at the Top of an Intermediate Advance, may, despite its normally Bearish implications, be converted into a Consolidation or Continuation Formation if its Flat Top is decisively penetrated on the upside.
