The Time Element: Momentum of Reversal
Another question investors have to ask is what to expect after a long period of consolidation. Will the eventual reversal be strong or weak? How long will a new trend last?
A desirable answer is that the characteristics of consolidation dictate the size, shape, and duration of the trend that does follow. Unfortunately, that is not the case. However, momentum might represent a period during which buyers and sellers figure out their position regarding a company’s stock. This momentum is eventually expressed in the deferred reversal. In the case of the chart in Figure 5.1, the exceptionally long consolidation leads to a strong uptrend. To some degree, this range-bound period might have influenced the new trend ...
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