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John: Since we started “Technically Speaking” a few weeks ago, our single market sector focus has been Gold.  This sector has seen a rapid rise in the price of Gold over the last few years and the continuance of the primary trend is apparent.  As we have seen with BMR’s flagship Gold junior, Gold Bullion Development (GBB, TSX-V), and the trend of the CDNX, this is the time to select a portfolio of juniors as that market appears primed for a bullish move during this second half of 2010.

We are all painfully aware of the economic calamity that affected all countries in 2008-2009 and the devastation to all global stock markets that finally bottomed in March, 2009.  Since that time there have been steady improvements in the markets and in most economies but not without a few serious bumps in the road – the European debt problem being a prime example.  As we enter the 3rd quarter earnings season, there appears to be an increasing number of large North American companies with larger than expected revenues and profits.  This is the underpinning or support investors and the major indices are looking for.

The Dow Jones Industrial Average is considered to be representative of the “Economic Engine” of the United States and of course to run an engine one requires energy, especially in the form of light crude.  Thus, we feel it’s prudent at this early time in the recovery process to examine the energy sector – specifically light crude and to look at the relationship between the Light Crude (continuous contract) Index (WTIC), the Dow and the CDNX.  There are a lot of junior oils on the CDNX, so some correlation between the WTIC and the CDNX is expected.

The analysis of light crude will be presented in 2 parts.  First, a 3-year weekly chart to determine the correlation between WTIC, the Dow and the CDNX.  Second, an in-depth technical analysis of the light crude chart.

PART #1: WTIC, Dow, CDNX

The above chart is a 3-year weekly chart comparing the WTIC, the Dow and the CDNX.  We see that the Dow and the CDNX started to decline in 2008 whereas the WTIC continued to climb to reach a top of nearly $150/b in July, 2009.  From there it declined to a low of $40/b and bottomed along with the Dow and the CDNX during the Nov./08 – Mar./09 period.  From there, for 17 months, all three indices have moved in a primary trend together.

We can conclude, then, that under the present circumstances there is a close correlation between the WTIC, the Dow and the CDNX.

PART #2:  WTIC Chart

On the 18-month weekly WTIC chart we see that from Oct./09 to the present, light crude has been moving up in a horizontal trend channel (black horizontal lines) between a low of $70 and a high of $87 (balance of analysis below chart):

A long-term support trend line (green) was broken in May of this year and this became a resistance trendline (blue).  From that break, light crude has formed an ascending triangle (thin blue lines) with a top line resistance of $79.  Light crude is currently trading around this value.

Also shown are two long-term moving averages – SMA(50) and SMA(200).  Light crude is trading just above these, providing strong support.

Looking at the indicators:

The RSI is flat but slightly above the 50% level – slightly bullish.

The Slow Stochastics has the %K (black line) above the %D (red line) with both pointing up – slightly bullish.

The ADX trend indicator has the -DI (red line) above the +DI (green line), and the ADX trend strength indicator is low and flat, denoting a low bearish trend.

Outlook: Light crude has a slightly bullish chart pattern but requires an increase in demand to make it break above the $80 level and then to continue through the top of the horizontal trend channel.  Until the “engine” demands more fuel, light crude will keep trading within this channel.

Gold’s recent weakness hasn’t changed our outlook for the yellow metal one bit – we’re as bullish as ever entering the final 5 months of the year, and the action in the CDNX lately confirms our view that Gold is near a bottom.  Tonight, BMR’s technical analyst takes a fresh look at the chart for Gold:

Gold is sitting on strong support and is an excellent position for a near-term turnaround.

John: The price of Gold (continuous contract) opened at $1,162 today, traded as high as $1,166, dipped to $1,156 but closed at $1,164 – up $2 on the day.  Gold continues to pound the support level of $1,160 which is holding up very well.  So tonight we take a look at the 3-year weekly chart and try to determine what has happened and what we can expect in the near future.

Looking at the chart, we see on the left hand side a large mauve circle enclosing the trading period between Aug./07 and Dec./08.  This was the period when there was a serious economic crisis affecting the economies of almost every country in the world and what we see is Gold’s reaction to this meltdown of markets and economies.  First, Gold rose from an Aug./07 low of $650 to a Mar./08 high of over $1,000.  Then over a period of 7 months to Oct./08 it suffered a 5-wave correction to return to around $680 from which point it started to recover to trade again in a stable market.

From Dec./08 to the present day, Gold has traded within an upsloping channel except for a 2-week “bull fake” and a 5-week “bull trap” as shown on the chart.  The top blue line of the channel is resistance and the green lower line is support which has been tested on at least 10 weekly occasions, thus validating it as true support.

Today’s trading was right on that support line and also at the chart level support of $1,160 (horizontal short green line).  This is a very strong support position for Gold.

Let us look at the indicators:

The RSI(2) is <2 which is considered an extreme position and usually means a reversal is close – bullish.

The Slow Stochastics has both the %K and the %D heading lower but above the oversold region, indicating that there is still time for another test of the support line – neutral.

The ADX trend indicator has the +DI (green line) above the -DI (red line).  The ADX (black line) trend strength indicator is pointing down, confirming that the bearish trend is weakening – slightly bullish.

Outlook: Gold is sitting on strong support and is in an excellent position for a near-term turnaround.

Gold is stabilizing this morning after yesterday’s sell-off…the yellow metal has traded in a range of $1,157 to $1,167 so far today…as of 8:40 am Pacific time, Gold is down $1 an ounce to $1,161…physical demand and very strong technical support at $1,140, near the 200-day moving average, should limit Gold’s downside from here…a very encouraging factor is that the CDNX has essentially shrugged off Gold’s weakness over the past few weeks and has moved in the opposite direction…the CDNX is a very reliable leading indicator and this development suggests Gold is indeed nearing a bottom…a World Gold Council report indicates that the Council anticipates India Gold demand will likely pick up toward the end of the summer and that there is evidence to suggest jewelery demand in China may have started to pick-up in July…the CDNX is ahead 6 points this morning to 1402…Gold Bullion Development (GBB, TSX-V) dropped to 53 cents this morning (after reaching an intra-day high of 57 cents yesterday) but is currently unchanged at 54 cents…accumulating this stock on weakness has certainly been the winning strategy since March when the company first announced a significant discovery in the LONG Bars Zone at Granada…BMR’s technical analyst made some very interesting observations regarding Gold Bullion in a piece posted Sunday evening…while the stock clearly has some resistance at 57 cents at the moment, some bullish signs have appeared that are similar to what was observed in mid-May…a reversal in the stock’s 20-day moving average, which went into decline this month for the first time since March, also appears imminent…all technical considerations aside, we love the fundamentals with GBB as the Granada Gold Property is a very compelling geological story with immense potential…speaking of “blue sky”, we continue to keep a close watch on North Arrow Minerals (NAR, TSX-V) which closed at 20 cents yesterday…NAR recently broke out of a 2-month range of 15 to 18.5 cents…upon approval of a drill permit, the company is preparing to commence a 1,500 metre program in early September at its very promising Lac de Gras diamond property in the Northwest Territories…we added NAR to the BMR Portfolio in April at 18 cents in anticipation of exploration at Lac de Gras in addition to other interesting situations in its portfolio including the Beaverdam Lithium Project in North Carolina…North Arrow is led by one of the very best in the business at grassroots exploration who is also a member of the Canadian Mining Hall of Fame, Gren Thomas…we met with Gren again last week in Vancouver and he is extremely upbeat with how things are progressing with North Arrow…we’ll have more on the company next week…for those who are intrigued with old-fashioned grassroots exploration, and the blue sky potential that offers, North Arrow is certainly a company worth doing due diligence on…

Gold is getting hit hard today…as of 8:30 am Pacific time, the yellow metal is off $20 an ounce to $1,162…this is hardly a surprise…Gold is testing strong technical support, as we predicted it likely would, between a range of $1,140 and $1,180…physical buying should also help keep Gold from falling below $1,140…what’s interesting, and a clue that Gold is probably close to bottoming out, is that the CDNX has been moving in the opposite direction of Gold over the last few weeks…the CDNX has been up 10 of the last 12 sessions…after climbing a few more points in early trading today, the Venture is now off 3 points at 1401 in sympathy with some weakness in New York and Toronto…given the drop in Gold, however, the Venture is holding up very well…Gold Bullion Development (GBB, TSX-V) is trading within a range of 53 to 57 cents this morning on strong volume…after 2 hours of trading it’s down a penny to 54 cents…Richfield Ventures (RVC, TSX-V) is unchanged at $1.35…the company came out with very good results yesterday from its Blackwater Gold Project in central British Columbia…a second rig is expected to be drilling at Blackwater within the next couple of weeks which will speed up what has been a slow drilling process since April…Fire River Gold (FAU, TSX-V) has completed a $5.5 million financing and announced this morning that a 28,000 metre drill program has commenced at its Nixon Fork Gold Mine in Alaska…initial drilling will focus on surface targets, particularly lateral or downplunge extensions of known mineralized zones, before shifting to underground drilling…Fire River is up 2 pennies to 60 cents…it’ll be a very busy summer for Fire River…Sidon International (SD, TSX-V) is up half a penny to 11 cents…the stock continues to digest its recent large gains and should find strong technical support around 10 cents as it unwinds its overbought condition…

Gold’s chopiness continues…Gold has traded in a range of $1,180 to $1,199 so far today…as of 7:30 am Pacific time, Gold is off $7 an ounce to $1,182 near the low of the day…the price should get support on weakness from physical buyers…traders and dealers say the recent correction in prices has pushed up sales this month…India, which accounts for more than 20 percent of global demand, will celebrate the Hindu festival of Raksha Bandhan on August 24 and Janmasthami and Ganesh Chaturthi in September…India is the world’s largest consumer of bullion and may import 500-550 tonnes of gold in 2010, up from 480-490 tonnes a year earlier…a period of seasonal strength is just around the corner for Gold which should also give the CDNX a boost…the CDNX is up another 2 points this morning to 1397…the Venture is facing some technical resistance around current levels so it’ll be interesting to see how it performs this week…our outlook is bullish…Gold Bullion Development (GBB, TSX-V) is showing some strength this morning…it gapped up slightly to 51 cents (where it’s trading at now, a gain of 2 pennies) and got as high as 53 cents where there is some minor resistance…as detailed by our technical analyst last night, GBB chart patterns are looking similar to those of early-to-mid May, prior to the start of a major run that took the stock from 35 cents to a high of 71 cents over a period of about 6 weeks…from a fundamental perspective, we have every reason to be optimistic given Gold Bullion’s July 13 news release…the east-northeast area, which is a big driver of GBB’s blue sky potential, appears to be shaping up very well…if the assays confirm the visuals, then it’s off to the races…Sidon International (SD, TSX-V) is down half a penny to 11.5 cents…Sidon continues to digest its big recent gains and consolidate which is actually a healthy thing from a technical standpoint…Richfield Ventures (RVC, TSX-V) reported good drill results this morning from its Blackwater Gold project and the stock has responded accordingly…Richfield has broken through important resistance at $1.35 (its 200-day moving average) and is currently up a dime to $1.40…it got as high as $1.59 in early trading…results included 260 metres grading 1.57 g/t Au (including a high grade intersection of 32 metres of 5.46 g/t Au)…198 metres of 0.88 g/t Au…and 227 metres grading 1.51 g/t Au (including a 66 metre section of 3.65 g/t Au)…results demonstrate continuity of grade and expand the size of the mineralized area, enlarging it to the east and south from the Dave zone…after falling as low as 90 cents this month, Richfield is back on track and has regained momentum…it is clearly developing what could become a world class bulk tonnage deposit in central British Columbia…

We’ve written a great deal lately about the bullish fundamentals for Gold Bullion Development (GBB, TSX-V).  Phase 2 drilling appears to be proceeding very well, though we have yet to see any assay results.  Some clues suggesting good results can be expected (based on visual observations of the core and deeper drilling in the east-northeast area) were very evident in Gold Bullion’s July 13 news release.  In the search for some additional clues as to the direction GBB could be headed, BMR asked its technical analyst to examine Gold Bullion’s chart.  Below are his very interesting findings:

Gold Bullion Development is looking very bullish with all chart patterns and indicators suggesting bullish volatility in the near future.

John:  On Friday Gold Bullion opened at 49 cents, traded as high as 51 cents near the end of the day, and closed at 49 cents on the lowest daily volume since February.

Looking at the 3-month daily chart, we see that during the first half of May there was a consolidation with a narrow price range just below the SMA-13 (dotted blue line) with relatively low volume.  The Bollinger bands were close together and almost horizontal, denoting low volatility.  On May 12, on volume of nearly 3 million shares, the price broke above the SMA(13) which started an uptrend culminating in a high of 71 cents on June 25.  This bull run effectively doubled the price from 35 cents to 71 cents.

Today’s situation is very similar.  The price is again just below the SMA(13) with very low volume and the Bollinger Bands are in a squeeze.  This is the first time the Bollinger Band width has been so low since May 11.  The chart is telling us to expect some volatility in the near future.

The Fibonacci levels are shown as thin green lines indicating the consolidation level is at the 38.2% (48 cent) level and the next Fibonacci target is 94 cents.

Looking at the indicators:

The RSI is at 42% and flat with plenty of room to move up before becoming overbought – bullish.

The Slow Stochastics has the %K (black line) at 36% and above the %D (red line) at 28% with both pointing up – bullish.

The ADX trend strength indicator has the +DI (green line) and the -DI (red line) close together and in multiple crossovers.  The ADX (black line) is pointing down at the low position of 20%, denoting low trend strength.  Together these indicate price consolidation.

Outlook:  GBB is looking very bullish with all chart patterns and indicators expecting bullish volatility in the near future.

Key moments to watch for which will confirm a new bull run has started:

1) The price closes above the SMA(13);

2) Daily volume >2 million shares;

3) RSI breaks above the 50% level.

The next 2 weeks are going to be interesting.

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