Typically in a consolidation phase in the stock market, a stock or an index trades within a specific range, between the ‘support’ and resistance’ levels. The price reverses from specific lower levels — the support — and faces selling pressure at higher levels — the resistance. This scenario, by and large, defines consolidation.

Technical indicators like RSI and MACD show sideways movement during this phase of the markets. 

Technical indicators are one tool to identify the direction, strength and momentum of the trend. The indicators’ inability to trend in any specific direction depicts a consolidation phase.

That said, investors should be mindful that unless there is a breakout in the stock or the index with definite consecutive closes, they should not be too quick to ‘confirm’ a trend.

A stock’s major outlook can be easily studied on its monthly chart. When the stock price breaks out of a consolidation phase, one can expect a strong move for a long period of time. Simply put, longer the consolidation phase of the stock or the index, the bigger the likely price move.

First Published: Jun 30 2024 | 12:26 PM IST