BullMarketRun.com

The Venture is often a leading indicator so the fact it outperformed the major markets today and reversed ahead of them is highly significant and suggests the sharp correction here in May may have ended.  Another wave down is still a possibility but today’s action was very encouraging.  We’ll see what kind of follow through occurs Tuesday (Monday is a holiday).  Our technical analyst examines today’s interesting activity below:

John: On the 7th trading day the BEARS rested.  Today we saw the CDNX gap lower at the open and then slide another 7 points to 1393 before it reversed and climbed steadily throughout the day to close at 1453, a gain of 32 points from yesterday’s close.

Today we have a bullish white candle which starts below the low of yesterday and closes above halfway up the body of yesterday’s downward red candle.  This candle formation is called a “bullish piercing pattern”.  The white body “pierces” the recent downtrend with the bulls overwhelming the bears.  The next trading day’s action should confirm this very powerful reversal pattern.

On the chart I have shown support levels (green horizontal lines) and resistance levels (blue horizontal lines).  Early last week many of these resistance lines were support lines (support changes to resistance when it is broken).

In order to corroborate the reversal signal of this candle pattern we must look at the indicators.

The RSI(2) is a shorter period than I usually use but because we are looking at an extreme situation, I wanted to find out if this indicator would show an extreme condition.  I have shown when the RSI(2) was at its lower extreme by the vertical blue dotted lines, i.e. when RSI(2) < 3.  There are 4 shown and 3 of them occur when the RSI(2) is at or near zero.  Yesterday’s RSI(2) was at or near zero, thus today we could expect a possible reversal, and yes it appears to have happened.

The same scenario occurred on January 19 and May 7.  On February 4 the RSI(2) did not get to an extreme low but as the orange lines show, there was a negative divergence between the Index level and the RSI(2) value.

The Fast Stochastics indicator shows that today the %K  (black line) crossed above the %D  (red line) below the 20 level, creating a “W” pattern similar to the reversal on May 3.  This indicates a strong probability of a reversal.

The ADX trend indicator shows the direction indicator -DI (red line) has reversed direction, thus reducing the strength and direction of the downward trend.

The immediate outlook for the CDNX is for a bullish white candle to occur on Tuesday, the next trading day for Canadian Exchanges.

Gold is down $4 an ounce to $1,179 as of 8 am Pacific time…the action in the Venture Exchange this morning suggests a bounce in the markets is close at hand…the Venture dropped as low as 1393 right off the bat this morning but buyers quickly jumped in and drove it back above 1400…the CDNX is currently up 3 points now to 1425 while the Dow and the TSX are still slightly in negative territory…today has the makings, therefore, of the “hammer reversal” our technical analyst was anticipating in his Wednesday report…basically, we’re looking for a bottom on the CDNX anywhere between 1200 and 1400…in five major corrections between 2004 and 2008 (excluding the crash of ’08), the average CDNX decline was 23% over an an average time period of 26 trading days…the current correction has sent this market down 17.5% over 15 sessions…there could be more to go on the downside after a bounce up…it’s important to understand however that this correction is NOT a repeat of the 2008 crash and is merely a normal CDNX sharp pullback within a powerful ongoing bull market…Gold Bullion Development (GBB, TSX-V) fell as low as 35.5 cents this morning before recovering…GBB is currently at 38.5 cents, down half a penny…the money-making strategy with GBB can be summed up in three simple words – ACCUMULATE ON WEAKNESS…the same can be said of Richfield Ventures (RVC, TSX-V) which is also working on a potentially huge bulk tonnage gold deposit…Richfield is off 3 cents to $1.23…Sidon International (SD, TSX-V) is a no-brainer buy at a nickel…they have completed their financing and investors now just have to be a little patient with the Exchange as it needs to review various documents including a report on the Morogoro East Gold Property…Seafield Resources (SFF, TSX-V) is at 17 cents where it also is an attractive buy…Seafield should hold at or above its recent low of 16 cents…

The 16% drop in the CDNX over the past 14 trading sessions has not been pleasant and more downside action should be expected.  But we caution investors not to panic and start throwing stocks overboard.  This is not a repeat of 2008 and there’s a very strong chance, based on historical patterns and favorable long-term moving averages, that this market will be significantly higher in three months than it is now (maybe even significantly higher within a month).

The CDNX is now clearly in the midst of a major correction.  We’ve seen this in previous bull markets so while this is certainly a little gut-wrenching, it’s nothing extraordinary and completely normal.  And it also presents an incredible opportunity to make boatloads of money.

Let’s look at other major corrections the CDNX has experienced since 2004:

2004 – 19% drop over 31 trading sessions from early April to mid-May (1890 to 1530)

2005 – 21% drop over 50 trading sessions from March to May (2025 to 1590)

2006 – 29%  drop over 22 trading sessions in May (3300 to 2350)

2007 – 29% drop over 17 trading sessions in August (3320 to 2350)

2008 – 18% drop over 12 trading sessions in January (2875 to 2350)

(Of course later in 2008 we witnessed the greatest crash of all – a 75% drop over almost 6 months from July into December).

If you were a buyer toward the end of the five major corrections cited above, you likely made a lot of money.  The CDNX rebounded sharply after each of those corrections.

Excluding the extraordinary fall over the last half of 2008, the average percentage decline in the five major corrections between 2004 and early 2008 was 23% over an average duration of 26 trading sessions.  So far this month the CDNX has plummeted 16% over 14 sessions.  That implies the Index likely has further to go on the downside – a 23% drop would take it down to about 1300, just below its rising 300-day moving average.

While the CDNX’s 100-day moving average has now started to decline – suggesting some further weakness – the all-important 200 and 300-day moving averages are still rising with no danger of reversing.  Our worst-case scenario is that the CDNX bottoms out at 1,200 (a 30% correction) where it has tremendous support.  An average 23% correction takes the CDNX down to 1300.  There is also strong support at 1400.

With 2008 fresh in everyone’s minds, there’s a lot of fear and panic in the markets right now.   That’s actually a good sign that a bottom is probably near.  The CBOE total put-call ratio right now is at an extraordinary extreme – by far its highest reading in over a year.

Those brave enough to buy into further declines in the CDNX are likely going to be handsomely rewarded by this summer.  This is how fortunes are made – buying when everyone else is selling within an ongoing bull market.

It’s another ugly day on the markets but the worst thing an investor can do right now is panic…Gold is off its lows of the day and is now up $2 an ounce to $1,193 as of 8:30 am Pacific time…the CDNX continues to take a beating and is down another 48 points to 1438….it’s now in an area (the 200 day moving average and the February low) where it’s reasonable to expect it will find strong support, at least temporarily…we’ve warned about the possibility of a 20 to 30% CDNX correction all year but pinpointing exactly when that might occur is an almost impossible task…what we’re seeing right now with the CDNX, in an historical context, is very normal within a bull market and will present us with some incredible buying opportunities…it’s important to understand this is not 2008 all over again…the underlying technical condition of the CDNX is far, far stronger than it was in the summer of 2008, and even a drop to 1,200 on the CDNX would not end this ongoing bull market…what we’re seeing right now seems very similar to the 2004 market that took a major dive in the spring and roared back afterward…Gold Bullion Development (GBB, TSX-V) dropped as low as 38 cents this morning but is bouncing back…GBB is currently down half a penny to 41.5 cents…through this market weakness, astute investors will gobble up every single share of GBB that some nervous nellies put up for sale because Gold Bullion ultimately is headed much higher based on the fundamentals of a major discovery at Granada…based on last week’s developments with Seafield Resources (a 10 million share day), we see little downside risk with SFF at the moment which appears to have bottomed out recently at 16 cents…Seafield is down 1.5 cents to 18 cents on low volume this morning…Kent Exploration (KEX, TSX-V) has also dropped into an area of very strong support….Kent is down 1.5 cents to 14.5 cents…the stock dropped as low as 13.5 cents last February and that’s possible again now but would make for a terrific buying opportunity…

The CDNX appears to be in free fall but this is NOT 2008 all over again.  BMR’s technical analyst is watching closely for a “hammer reversal” .  Below is John’s view of the situation going into Thursday’s trading:

John: The CDNX displayed more weakness today, falling a whopping 54 points, again pressured by the weakness in North American markets and the price of Gold which collapsed to $1,191 per ounce, a drop of $32.

Today’s chart compares the CDNX with the price of Gold to view their relationship during the recent volatile period.  The CDNX is the focus, so it’s shown in candle format while the price of Gold is displayed as a single black line.

On the chart I have drawn the CDNX support levels (long horizontal green lines).  From Tuesday’s close (top green line) the CDNX plunged through the 2nd and 3rd support levels and stopped at the 4th support line before retracing 16 points to close at 1486.

On the chart I have shown the Fibonacci levels (blue bars) to determine the downward target of the 3 wave correction that has taken place over the last 13 trading days.  The target is shown as 1474 – very close to the low of the day at 1470.

The 3 wave correction started on May 3rd and for 5 days the Index fell whereas the price of Gold rose, the CDNX being influenced by the weakness in the other North American markets.  Then for three days the CDNX rose for a 61.8% retracement and the Gold price also increased.  Then on May 12th, both peaked and since then both have continued to fall in concert.

For what may happen in the near future we have to look at the indicators.

The RSI has plunged deep into the oversold region (below 30%) and shows no sign of reversing direction.  Maybe it has further to drop.

The volume yesterday was higher than each of the previous four days.  This shows weakness, maybe some capitulation.

The ADX trend indicator has the ADX trend strength (black line) low at 22 (weak trend), slightly turning up, and with the -DI (red line) above the +DI (green line) the weak downward trend is gradually strengthening.  However, the -DI is in a steep climb above 50 and should very shortly peak and reverse direction.  This is a bullish sign that the bottom may be close.

Outlook for the CDNX : More downside is expected Thursday to test Wednesday’s low.  Either Thursday or Friday I expect to see a “Hammer”.

We are travelling this morning so this update is being posted at 5:45 am Pacific time prior to the market open…Gold has been weak overnight and is currently down $14 an ounce to $1,208…Gold should find strong technical support at $1,200 as we have previously indicated…the CDNX will be looking to snap a 4-session losing streak today…the one positive sign over the past 4 trading days has been the low volume…nonetheless, the technical picture has weakened with the CDNX but it’s premature to say we’re in the midst of a major correction…this market does have some strong support levels to hold it up…a great exploration story can always buck the market trend and that’s certainly the case with Gold Bullion Development (GBB, TSX-V) which broke out, as predicted, to a new all-time high yesterday of 45 cents…the stock is now up an incredible 844% since BMR introduced it in December at just 7 cents…interestingly, insiders haven’t sold a single share and Jordan Capital – the earliest player in this run – increased their net position in GBB last week by approximately 20% with significant buying in the mid-30’s…GBB is definitely one to hold for the long haul…investors should keep a close watch on Kent Exploration (KEX, TSX-V) as assay results are due any day now from the company’s Turnberry Prospect in Western Australia…Turnberry is the most advanced property in the Gnaweeda Gold Project, a joint venture with Teck, and has strong potential to deliver impressive numbers…we’ve researched this property in earnest and it’s safe to say Kent will hit gold – the only question is how much…just 8 miles away, Australian-listed Doray Minerals saw its share price skyrocket in late March/early April when it made a major discovery at its Andy Well Property…Kent is spinning off its Gnaweeda Gold Project into Archean Star Resources but BMR now believes the results from Turnberry will precede the spinoff…Richfield Ventures (RVC, TSX-V) jumped 12 cents yesterday to $1.65…BMR is very bullish on Richfield’s Blackwater Gold Project in central British Columbia where a 25,000 metre drill program is underway to try and prove up a large bulk tonnage deposit that could very easily be several million ounces…

After four straight losing sessions, the CDNX is once again at a critical technical juncture.  The one positive sign over the last four trading days has been the very low volume.  John, BMR’s technical analyst, reviews the current state of affairs below:

John: Again yesterday the CDNX displayed weakness, acting in concert with all other North American markets and dropping another 14 points.  Gold did not provide any support.

Looking at the daily chart, we see that over the first three days of last week the CDNX regained 61.8% of the previous week’s decline as shown by the Fibonacci levels (blue bars).  Then on Thursday, Friday and Monday we saw a total retracement of that gain.

On the chart I have put in the resistance levels (long horizontal blue lines) and support levels (long horizontal green lines).  On Monday we saw the CDNX reach a low of 1545, near Friday’s close, and then it bounced up to close at 1554.  The top support level had held.  Yesterday, the Index plunged through the top level of support and finished at the second level at 1540.

For what may happen in the near future we have to look at the indicators.

The RSI is falling and has moved into the oversold region which is below the 30% level.  I have draw in a trend line (red) on the RSI that must be penetrated upward for any reversal to occur.  There is no sign of a turnaround as yet.

The daily volume declining each day for Thursday, Friday and Monday, with yesterday’s volume only slightly higher than Monday’s, is a positive sign for a possible reversal in the near future.  The daily volume over that four-day period was lower than the average daily volume.  These points are important because the force of increasing volume when the trend is down would cause the Index to fall faster and further.

The Slow Stochastics shows that both the %K and the %D lines are below the 50% level and falling with no sign of turning up.

The ADX trend indicator has the ADX trend strength line flat at 20, so any trend is weak.  The -DI (red line) is above the +DI (green line) indicating that the weak trend is bearish.

The outlook for the CDNX for the immediate future is to expect more downside and to expect one or more of the support levels to be tested.  On the other hand, if we should suddenly see all of the other markets’ woes disappear overnight we could see a reversal today.  Don’t count on it, however.

On Sunday we presented Part 1 of our audio interview with Peter Bernier, President and CEO of Richfield Ventures (RVC, TSX-V).  Today we’re pleased to present the balance of that conversation – Part 2.  As of 11:45 am Pacific time, Richfield is at $1.55 – up 2 pennies on the day – and in a strong area of technical support on the charts.

Gold discoveries in British Columbia are nothing new – this province is blessed with abundant resources of all types – but what’s happening at Richfield Ventures‘ Blackwater Project 150 kilometres southwest of Prince George is highly significant and stirring an immense amount of interest.  We saw this coming back in December which is why we added Richfield to the BMR Portfolio at $1.20.  It roared to a 52-week high of $2.25 last month but the recent market weakness has pulled it back into a very strong area of support between $1.50 and $1.70, presenting a great opportunity for investors to either add to current positions or enter for the first time.

Richfield is following up a very successful 18-hole program last fall with a 25,000 metre drill program that started last month.  The potential for at least five million ounces at Blackwater is very real – one only has to take a quick look at the intersections below to realize that a world class bulk tonnage deposit is the making here:

455 metres     1.03 g/t Au    4.30 g/t Ag

207 metres     1.06 g/t Au    5.00 g/t Ag

148 metres     1.26 g/t Au     5.04 g/t Ag

133 metres     1.02 g/t Au     8.20 g/t Ag

Richfield’s President and CEO is Peter Bernier who leads a highly qualified and focused team that BullMarketRun expects will make Blackwater a huge exploration success and the company a strong takeover candidate.  Richfield’s market cap of only $42 million (27 million o/s x $1.55) is perhaps only 15% of a potential takeover price, so despite the stock’s climb from just pennies a share last year there’s still a lot of room for investors to profit handsomely if drilling continues to produce favorable results.

“I don’t think people quite understand the size of this deposit and the mineralization we’re getting at depth.” – Bernier.

Below is Part 2 of our interview with Richfield’s President and CEO:

BMR Interview With Peter Bernier (Part 2)

While Richfield is certainly a highly speculative stock (that’s what we focus on here at BMR), the company’s results to date have been remarkably consistent and have correlated extremely well with historical work on the Blackwater properties.  We view the risk-reward ratio at this particular time, therefore, to be highly attractive.  The blue sky potential with this stock is immense, especially given the current takeover environment and Gold’s move to record highs.