Once a price index forms a significant top or bottom, we can draw a horizontal line through it to project future levels of support and resistance. When the price index is above such levels, they are considered to be areas of support. If the price index is below the line, it is considered to be resistance. Support is caused by underlying demand from buyers who finally see an attractive price, while resistance is the result of overhead supply from sellers wishing to exit.

When prices trend sideways, we will often see a channel formed by the resistance above and the support below. (Not surprisingly, we also think of rising and falling trend channels as being bounded by support and resistance.)

Horizontal trends are called "continuation patterns" because it is assumed that prices will continue in the same direction they were headed before they began to move sideways. They are also called "consolidations" because they serve the function of digesting or consolidating the excesses of the rising or falling trend that preceded them.

One of the great consolidations of all time took place in the 1960s and 1970s, a 20-year period needed to digest the bull market rise from the 1932 low.