When the uptrend is closing into areas of resistance, strong hands
take from the weak hands. Such areas include consolidation points or
retracements back toward the primary trend line, moving average or
linear regression line. Here in these consolidation points, the law of
cause and effect prevails, implying price change should be relatively
stronger than volume change. This means an uptrend does not need
to produce a greater volume growth relative to price appreciation
when the stock or market approaches a resistance area or support
where many weak hands reside. Within these consolidation zones,
should the volume change be greater than the price change, the market
operates under the principle of conservation and effort exceeds
results. In such high volume cases, the law of cause and effect suggests
the stock or market is being churned. Churning occurs when
strong hands distribute shares to weak-handed momentum traders
who anticipate a technical breakout or breakdown to precede the
consolidation basing phase. However, ongoing high volume (effort)
with minimal price appreciation into these consolidation zones might
actually suggest precisely the opposite scenario—a stall or reversal in
trend (see Figure 7.8).
For example, in the battle between supply and demand, when
the demand line (uptrend) reaches its enemy’s (supply) trench line
(resistance), the advance should be slowed or temporally stalled
with moderate or light causalities (volume). However, should the
uptrend take on heavy causalities (volume) without largely advancing
the trend higher through resistance, then it might be assumed
demand is losing the battle to supply. This might take the appearance
of several small up or down bars clustered together. This is
again affirmed by the volume expanding within the consolidation
zone, a clue that the stronger hands are actually those controlling