The Golden 5

The guiding principle with respect to technical analysis (TA) has always been the THE GOLDEN 5 (dimensions) of TA. The GOLDEN 5 represent the 5 dimensions of TA, which are:

1)Context & Relative Strength
What themes are driving the market?
What sectors are leading ?
What is the path of least resistance ?
Does the a.m. make sense from a fundamental angle?

2)BREADTH
Do we see a broad participation?
Do they all have fun or just the High Beta animals (like ...aapl, rimm, goog)
Is the herd exhausted, ie Overbought (Oversold)?

3)MOMO (Momentum)
How much "umph" do we see ?
How strong is MOMO?..or is fading?

4) VOLUME
Do we see real buying or just some hedgie and/or prop desk action?
Are patterns supported by Volume (like upside break out with strong, high volume)?
Bottoming / topping Vol pattern ?

5) Sentiment
What is driving the herd?
Are they all bullish or bearish?
What is the optionmarket telling and does it reconcile or diverge with the cash market ?


The Golden 5 just offers a desciptive framework, meaning we are still in the "VIEW FREE ZONE". The challenge or art now is to bring all observations together in harmony with the twist that you have to gage them from the perspective of the 2nd derivative. This means you don't have to wonder about the meaning of 1-5 but how the "regular analyst" would assess 1-5, what story they would spin to rationalize and what (contrarion) opportunity is left for you from a risk reward point of view.



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