BullMarketRun.com

CDNX

The CDNX is at a critical juncture from a technical standpoint. It closed Friday exactly at its rising 50-day moving average, 1,492, for a 58-point or 3.7% loss on the week. The CDNX has held at or above its 50-day moving average since July of last year, and now it must contend with declining short-term moving averages (10 and 20-day).

It’ll be important to watch how this market performs Monday and the rest of the week. From a technical standpoint, it would be bullish if the CDNX were able to hold at current levels and move even just slightly higher in the week ahead. So we’re looking for support and some consolidation right around 1,500. We believe there’s a good chance of that happening, but keep in mind there’s also the risk of a sharp decline in tandem with the major markets – and gold itself – which are also at critical technical junctures.

The action we saw Friday in the TSX Gold Index (and the HGD and HGU ETF’s) was actually encouraging. The HGU closed at its low of the day and below $10.00 – anytime the HGU has closed below $10.00 over the past year, it has been a super buy. At $5.57, the HGD is up against very strong resistance – a declining 200-day moving average – and it’s clearly overbought based on Stochastics and RSI.

We therefore believe the evidence suggests we’ll see a bounce in the gold market this coming week (there is a danger of going lower down the road, but a short term rally at the very least appears to be in order). And looking at the big picture, the Venture Exchange is still up from its December highs while gold is down 12% and the TSX Gold Index is off a whopping 24%. This is a bullish divergence as we’ve mentioned here repeatedly in recent days.

The BullMarketRun.com Portfolio

Gold Bullion Development Corporation (GBB, TSX-V)

Gold Bullion came out with encouraging assay results on three of the first 25 holes drilled at its Granada Gold Property since December. The stock sold off slightly, however, to 9 cents, a 1.5 cent loss on the week. It is still ahead, however, 20% from when we initiated coverage in December. We believe the Granada Property holds excellent potential as a large tonnage, low grade, open pit deposit, and last week’s news – which we’ll be expanding on soon – is confirming that. There is much work ahead at Granada, and we expect Gold Bullion is going to be very aggressive there in the months ahead. The stock has very strong technical support between 8 and 9 cents. After a little more consolidation, and some clearer communication on how Granada is developing, we believe Gold Bullion will be ready for another powerful move to the upside.

Seafield Resources (SFF, TSX-V)

We have no concerns regarding Seafield despite its 20 cent close Friday, a drop of four cents on the week. Seafield has proven to be volatile, which is why we suggested traders take profits back in January in the high 20’s. Seafield has tremendous support at its 100-day moving average of 18 cents, and at current levels we believe this is a strong long-term buy. Seafield has traded at or above 20 cents for 18 consecutive trading days. A warrant trigger clause will come into effect if the stock closes at or above 20 cents Monday and Tuesday (warrants to purchase 12 million shares at 10 cents). The company is in a strong cash position and we expect news on its Colombian properties in February.

Kent Exploration (KEX, TSX-V)

(Please see our separate post today on Kent. The company came out with disappointing gold/silver assay results after Friday’s market close from its Flagstaff Mountain Property, but this merely presents a potentially great buying opportunity if some nervous nellies decide to dump this stock in the coming days. Kent is a solid company with excellent management and a strong foundation of high quality projects).

Greencastle Resources (VGN, TSX-V)

We are very bullish on Greencastle for both the short and long term, and right now it has more momentum than any other stock in our portfolio. Greencastle, which is trading at only a small premium to its cash value, came out with a very short news release this past week:

“Greencastle Resources Ltd. has completed a two-well drilling program at the Cabri and Boggy Lake projects in southwestern Saskatchewan.

Both wells have been cased for testing and evaluation of potential horizons. This testing should occur in the next few weeks. With the completion of this additional work on these first two wells, Greencastle will earn a 50-per-cent working interest in six sections (3,800 acres).”

There’s a lot to the Greencastle story, and we believe the company could very well be on the verge of another significant oil discovery (just over six years ago, Greencastle hit a heavy oil zone at its Primate Property in west central Saskatchewan – it sold that property off for a royalty which has generated $9 million so far for Greencastle). For competitive reasons, the short two paragraph release with little detail from Greencastle on the drilling at Cabri and Boggy Lake is what we would expect to see in the early days of a discovery. This situation needs to be followed very closely. Greencastle closed Friday at 18.5 cents, up 2 cents on the week, and appears ready to advance further.

Richfield Ventures (RVC, TSX-V)

As we expected, a tremendous buying opportunity is taking shape with Richfield which closed Friday at $1.00, down 12 cents on the week. Richfield is facing pressure from cheap private placement stock that recently became free trading, and from the fact there’s no winter drilling at Blackwater. Depending on market conditions, our entry point here is between 70 cents, the 200-day moving average, and 90 cents where this is also strong support.

Colombian Mines Corporation (CMJ, TSX-V)

A weak overall market took Colombian Mines down 12 cents this past week to its 50-day moving average of 77 cents. Technically, the stock has suffered some short-term damage and could possibly drop into the mid-60’s where it has substantial support. CMJ has a tremendous portfolio of high quality projects in Colombia that it acquired from the Colombian government through the direct acquisition process, so any further weakness here is viewed as a very attractive buying opportunity. This is a company with deep roots in Colombia and strong management.

On January 25, we posted these comments regarding Kent Exploration’s (KEX, TSX-V) pending gold/silver drill results from its Flagstaff Mountain Property in northeast Washington State:

“Truth is, we can speculate all we want about what those holes in October may have encountered, but we won’t know for sure until the news hits the wire. We’re hopeful, though, and at 20 cents we believe the risk-reward ratio here is exceptional.

The best-case scenario is that Kent confirms CE’s historical drill results – the stock blasts off like a rocket to new all-time highs.

The worst-case scenario is that every hole drilled at Flagstaff last October turns up empty – in that case, though, Kent is still sitting on a substantial high-grade barite deposit at Flagstaff, for which there is a guaranteed buyer when production commences through a deal with Matovitch Mining Industries, and the company has outstanding gold prospects in New Zealand and Australia which are coming along very nicely.”

Well, the worst-case scenario unfolded Friday afternoon with three of Kent’s nine holes delivering only anomalous gold and/or silver results. In short, they simply weren’t able to confirm in any way the impressive historical drill results obtained by CE Minerals. Why that is, we don’t know. Right now that’s not important.

No doubt some nervous nellies will be inclined to dump Kent stock Monday morning, but that would be a huge mistake in our view. Kent’s current market cap is only $6.3 million which we believe already undervalues the company based on the following:

1. Kent’s Alexander River Gold Property in New Zealand is a winner – it has a non-compliant resource of 640,000 ounces of gold with excellent potential for doubling that resource. Kent will be drilling this property in the near future, and recently they released some impressive trench assays from Alexander which confirmed (even exceeded in some cases) the historical grades. This will be an exciting property to drill and develop, and Kent has other assets in New Zealand as well;

2. Kent has partnered with Teck on the promising Gnaweeda Gold project in Australia where phase one drilling commences in 4-6 weeks. A total of 14 targets have been identified at Gnaweeda which covers a strike length of 28 kilometres. Gnaweeda is going to be rolled into Archean Star Resources (www.archeanstar.com), a dividend spin-off for Kent shareholders who will receive one Archean Star share for every four Kent shares they own (upon all regulatory and shareholder approvals);

3. Flagstaff barite: While Kent has come up empty for now in its search for precious metals at Flagstaff, what they do have there is high grade barite – and lots of it. Kent is the only publicly traded company we’re aware of with a production-ready high grade barite deposit, and we anticipate they’ll begin mining barite there as early as this summer. Mine permits and a barite sales agreement are in place, though Kent still has to post a $140,000 reclamation bond. Infrastructure is excellent at Flagstaff, and the actual mining operation would be fairly simple (blasting, excavating, upgrading) and low-cost.

Kent recently completed a long-term sales agreement with Matovitch Mining Industries for 20,000 tons of barite annually at $40 per ton, but what we found interesting in a conversation with O’Neill last fall was that he stated, “Matovitch has indicated if we can produce 40 or 50 thousand tons a year, they would take it all.”

Annual production of 50,000 tons of high grade barite would generate approximately $2,000,000 in cash flow for Kent. “Including a fairly substantial fudge factor we’re looking at costs of about $20 a ton,” stated O’Neill.

Kent will remain a core holding in the BullMarketRun.com portfolio and we will be adding to our position on any weakness for the following reasons:

– Extremely well-managed junior exploration company;
– Tight share structure – only 35 million o/s;
– Pending cash flow from barite deposit;
– Potential million-plus ounce gold deposit at Alexander River in New Zealand, in close proximity to Oceana’s Globe Progress Mine, plus other prospects in New Zealand;
– Partnership with Teck on developing the promising Gnaweeda Gold Project in Australia;
– Archean Star dividend;
– Additional gold, silver, coal and zinc interests in Nevada, British Columbia, and Saskatchewan.

Any weakness in the Kent share price from the Flagstaff gold/silver results will present an incredible opportunity for investors to acquire a solid company at a substantial discount to its real value and long term prospects. That’s how we invest and that’s how money is made in the markets.

As O’Neill declared to us, “This is not a one-dimensional, one-trick pony.” “We have significant prospects that could bring extraordinary value.”

The technical deterioration that we’re now seeing in the CDNX – many individual stocks and the Index itself now have 20-day moving averages that are rolling over – suggests an increased risk of a downward move, and traders and investors should exercise extreme caution right now…better buying opportunities or a more clear picture of where the market is headed are probably just around the corner…sometimes it’s just best to wait and let the market tip its hand…the breakout in the U.S. dollar above 79 cents is a potentially important development, and could put continued pressure on gold and possibly send gold below its December low…the U.S. dollar faces major resistance at 81 cents, so that may prove to be a good re-entry point as far as the gold market and gold shares are concerned…we will go into detail on the individual stocks in our portfolio in our weekend “Week in Review” feature…as of 9:00 am Pacific time, gold is off $8.40 to $1,077 an ounce while the CDNX has dropped six points to 1,496…the U.S. Dollar Index has surged .47 to 79.42…

The CDNX managed to bounce off its 50-day moving average at 1,490 this morning, closing the day at 1,502 for an eight point loss…the modest recovery late in the trading session was an encouraging sign, as was the movement in the TSX Gold Index which hit at a low of 304 this morning before finishing at 311…we believe we’re at a key juncture in the CDNX with either a nearly immediate major move to the upside, or a breakdown to at least the 1,400 area…in this kind of a situation, we simply have to wait patiently for the market to give us a definitive sign which could come as early as tomorrow or the beginning of next week…an important clue for us would be whether or not the CDNX’s 20-day moving average can remain in an upswing as it has since last July – in order for that to continue, this market is going to have to reverse upward immediately…the current market action does have some parallels with last October, from a technical standpoint, so a sudden and very powerful move to the upside as we saw October 29 and November 3 (47 points and 37 points, respectively) cannot be ruled out which would turn this market around in a hurry…gold tested its December low again today, just above $1,070, and is currently trading at $1,085 as of 1:30 pm Pacific time…another factor we have to watch out for is a potential technical breakout in the U.S. dollar, an event that has been brewing for a while now (this would likely put downward pressure on commodities)…a bullish case for the CDNX is the fact gold is off nearly 12% from its December high but the Venture is actually up 2.5% from its December high…this is a bullish divergence and confirms in our view that an all-out crash in commodities and the CDNX is simply not in the cards…

Markets are in retreat again this morning, and it appears almost certain now that the CDNX’s 20-day moving average is going to turn negative for the first time since July…as of 9:15 am, the Venture is down another 15 points to 1,495, just five points above its 50-day moving average…the likelihood of a drop to 1,400 – the 100-day moving average and an area of strong support – has increased, and traders should take a cautious stance…we have always maintained that it is extremely important for investors to maintain reasonable cash levels to take advantage of unexpected market developments…any significant correction in the CDNX will present some very attractive buying opportunities as the long-term bull market remains firmly intact given the rising major moving averages which are in no danger of reversing…the worst-case scenario on gold, in our view, is a drop down to huge support near $1,000…we will be providing a market update following the close of trading today…

We are quickly approaching a critical juncture in the market…in terms of gold, what gives us comfort is that the HGD (the short Gold Index ETF) on the TSX is surging this morning ($5.30 as of 10:30 am Pacific time) and is within only about 35 cents of SEVERE resistance at its declining 200-day moving average of $5.65…the HGD is clearly in overbought territory from a technical perspective and this is no time to be chasing it…what this tells us is that we’re likely very close to a bottom in gold which is now off $13 to $1,084…the Venture Exchange is struggling this morning and is down 27 points to 1,507…a drop below the 1,500 level would be a concern, especially if it fails to hold at its 1,490 50-day moving average…the Venture has managed to stay at or above its 50-day since July of last year…

We’re looking for a turnaround very shortly in the markets…gold is off $2.00 to $1,095 as of 8:50 am Pacific time while the CDNX has shed 16 points to 1,517…Saskatchewan is one of the world’s last resource frontiers and it now has one of the best investment climates you’ll find anywhere on the planet, which is also why we are so excited about what Greencastle Resources (VGN, TSX-V) is doing in the southwestern part of that province right now…Saskatchewan may soon overtake Alberta as Canada’s largest conventional oil producer…”peak oil” production in Alberta was reached in 1983 while Saskatchewan is not even close to “peak oil”…since 2005, Saskatchewan has also surpassed Alberta in terms of average oil well productivity…what we’re hoping for with Greencastle – and it’s very realistic – is that they will find a dozen or so producing wells (medium gravity oil) in the Cabri-Boggy Lake area that will total one to two thousand barrels per day…it’s not hard to do the math and figure out what would happen to the Greencastle share price if that’s in fact what unfolds…keep in mind, this is a company that made a significant discovery in west central Saskatchewan just over six years ago…over a million barrels of heavy oil have been produced at Primate…Greencastle sold that for a royalty, which has given them consistent monthly cash flow ($9 million in total so far), but rest assured (as President/CEO Tony Roodenburg confirmed to us) they won’t be selling for a royalty if they make a discovery at Cabri-Boggy Lake…reading between the lines of yesterday’s short Greencastle news release, we believe Greencastle and its partners they like what they see so far…at 17 cents, Greencastle is trading at only a small premium to its cash value and the company also has considerable assets in gold, coal and shale gas…

In late 2003 Greencastle Resources (VGN, TSX-V) hit a heavy oil zone at its Primate property in west central Saskatchewan. The company subsequently sold the property for a royalty, and since then nearly $9 million has flowed into the Greencastle coffers. Not a bad pay-off for an exploration investment of only about $1 million.

Today, Greencastle President and CEO Tony Roodenburg is searching for Primate Two, but this time the royalty option is off the table and the target is medium gravity oil in the upper Shaunavon and Mannville formations of southwestern Saskatchewan near Cabri (a potential land package for Greencastle that is 12 times the size of the discovery area at Primate). Roodenburg has had a good taste of what an oil discovery can do for a company. He’s more experienced, more confident, and a bit more aggressive.

“This time we won’t be selling the property for a royalty,” Roodenburg told us at the recent Vancouver Resource Investment Conference. “We think we’ve learned a little bit and we’ve got a better Rolodex of people to work with that can operate. We have good partners.”

Greencastle reported this morning that it has completed a two well drill program at the Cabri and Boggy Lake projects in southwestern Saskatchewan with its partners Centaur Resources, 611890 Alberta Inc., and Bellport Resources. Both wells have been cased for testing and evaluation of potential horizons. The release was short on detail which is not surprising – in the early stages of this kind of grass roots exploration, it’s smart to keep your cards close to your chest for competitive reasons as additional lands may need to be tied up. With the completion of the testing on these first two wells, Greencastle will earn a 50% working interest in a six-section land package (3800 acres). It has an option to earn 50% in another six sections by drilling two additional test wells which Roodenburg told us in Vancouver he plans to do. He’s cautiously optimistic and pleased with the group he’s working with.

“The play was brought to us by a couple of guys who have an impressive amount of project experience,” said Roodenburg. “They did a lot of regional work on what sands are productive. They studied a lot of old drill holes that are in the government data base. I know their team spent a lot of time assembling the package – they bid on a lot of land, some they got, some they didn’t. We’re lucky we happened to be in the right place at the right time with cash and cash flow.”

Trading at just a small premium to its cash value, Greencastle is extremely attractive from a risk-reward ratio and has huge upside potential if its southwestern Saskatchewan oil play succeeds as Primate did six years ago. Greencastle also has some highly prospective gold properties on the Battle Mountain trend in Nevada, a coal property in Manitoba near a discovery last year by Westcore, and shale gas interests in Quebec. At BullMarketRun.com, we believe there’s a strong chance Greencastle will spin off its gold properties in the near future to unlock their true value and give shareholders, in effect, a dividend. Greencastle is a core holding in the BullMarketRun.com portfolio and it’s one we believe will generate superior returns in the weeks and months ahead.