CDNX
Traders beware – we call ’em as we see ’em, and a few cracks started to appear in the CDNX this past week – some “red flags” – that suggest to us that a minor correction (at the very least) has already started and will likely lead to a sell-off down to support around the 1,500 level. On Tuesday the Venture jumped 17 points to close at 1,579 and appeared ready to make another assault on 1,600 (the 52-week high is 1,629). But the momentum fizzled and the Index dropped the next three days to close the week at 1,564, a 4-point decline from the previous Friday. Of particular concern is that the CDNX’s 50-day moving average, which has been steadily rising without fail for over a year now, started to decline this past week when there was no follow through from Tuesday’s advance – this is a technically bearish short-term development and an “early warning” sign that we would be foolish to dismiss.
The CDNX has very strong technical support between 1,485 (the 100-day moving average) and 1,500, so our worst-case scenario at this point is about a 5% drop in the Index which could take some stocks down roughly 10 to 20%. Stochastics show the CDNX (along with the broad market) is also currently significantly overbought, further suggesting the likelihood of at least a minor correction. Trading action very early this coming week will be important to watch – an immediate and major reversal to the upside (through last week’s high of 1,582) would be required to change our view, while additional weakness would confirm our stance.
Our intermediate and long-term outlook for the CDNX remains very bullish as we see a strong possibility of the Index climbing to at least the 1,950 level this year. The divergence between the CDNX, gold and the TSX Gold Index since early December is very bullish as the CDNX has proven to be an incredibly accurate leading indicator of precious metal and commodity prices in general. The CDNX is up 6.7% since early December while gold is off 10.5% and the TSX Gold Index is down 19%. If a crash were coming in commodities, the CDNX would be leading the way down as it did in July of 2008. So all we see right now is the high potential for a healthy pullback in the CDNX, erasing about half the gains we’ve seen from February 5 when the most recent correction ended. A drop below February’s low of 1,429 would be an all-out sell signal for the CDNX and would suggest major trouble for commodities and the broad overall market.
Gold sold off sharply on Friday and its inability to gain major traction after February’s breakout is cause for concern. Also worrisome is the fact that commerical traders have recently ramped up their short positions in gold, and they’ve also taken a strong short position in oil. The U.S. dollar is showing renewed strength and is on the verge of another upside breakout. Given the American financial mess and the anti-business, far-left approach of the Obama administration, it’s hard to imagine the U.S. dollar being as strong as it is but everything is relative and it could be that it’s simply just the best of a bad bunch.
The HGD (TSX Gold Index short ETF) looks technically very attractive at $4.61 and could be the trade of the week if we get a breakdown in resource stocks.
The BullMarketRun Portfolio
Gold Bullion Development (GBB, TSX-V)
Gold Bullion had another spectacular week, closing at 29 cents (up a nickel for the week) on total volume of 13.7 million shares (GBB’s stock price has jumped a whopping 314% since we initiated coverage three months ago at 7 cents just prior to Christmas)…we spent three days at the Granada Gold Property this past week which confirmed our view that it has tremendous potential to develop into a very large bulk tonnage, open-pit deposit…the LONG Bars Zone northeast discovery has triggered major excitement in Gold Bullion, reflected in part by the company’s announcement last Tuesday of a $3.22 million private placement at 21.5 cents…assay results on another 13 holes are yet to come, and a huge round of new drilling is expected to commence around late April/early May…speculators and pro traders are already sinking their teeth into GBB, so the stock is likely going to be very volatile in the days and weeks ahead…one effective strategy, we believe, is to maintain a core position in GBB as well as a trading position, selling that trading position into strength and buying into weakness…technically, Gold Bullion is currently overbought based on Stochastics and RSI but that condition could persist for a while…
Seafield Resources (SFF, TSX-V)
Seafield was down 2 cents on the week to 26 cents which still represents a 333% gain for BullMarketRun readers who jumped in on this play at 6 cents last summer and have held on…the stock has pulled back, as predicted, from its late February high of 35.5 cents and is now in a zone where it should be aggressively accumulated once again…the worst-case scenario on the downside over the short term, we believe, is 22 cents – the 100-day moving average…but it’s also possible the stock already bottomed out last Wednesday at 24.5 cents…since last fall, Seafield has been a tremendous buy any time it has dropped below its 50-day moving average which it did last Wednesday…Stochastics and RSI are also now at levels where the stock has rallied from before…the company has completed its Colombian gold property acquisition agreement with Caribbean Copper and Gold Corporation, and exploration work in advance of drilling has already started at Seafield’s Quinchia district properties which are very close to Medoro Resources‘ (MRS, TSX-V) massive Marmato Mountain Deposit…the accumulation in Seafield has been incredible in recent months, leading us to believe this stock could be a repeat of Galway Resources’ (GWY, TSX-V) incredible run from under 10 cents to nearly $2.00…in short, despite Seafield’s 333% gain since we brought it to readers’ attention last summer, we believe the best has yet to come from this company which holds highly prospective properties in Colombia along with additional quality projects in Mexico and Ontario.
Kent Exploration (KEX, TSX-V)
Kent has yet to break out like others on our list but we strongly believe its time will come…this is a very well-run company with high quality exploration projects in Austalia, New Zealand and North America…Kent’s proposed spin-off of its Gnaweeda Gold Project is an astute strategic move, and amounts to a substantial dividend for Kent shareholders who would receive one share in Archean Star Resources for every four shares held in Kent…the stock closed Friday at 18 cents, down a penny on the week…the company is currently drilling at Gnaweeda and is also expected to commence drilling soon at its Alexander River Project in New Zealand.
Greencastle Resources (VGN, TSX-V)
Greencastle had a bad week, plain and simple…the two wells Greencastle and its partners were testing in the Cabri area of southwestern Saskatchewan turned out to be unproductive, and the stock responded by dropping to as low as 13 cents before closing Friday at 14 cents – a two-cent loss on the week…by drilling and testing those two wells, however, Greencastle has earned an interest in a large land package around Cabri which is considered very favorable for oil and gas exploration…at 14 cents, Greencastle is trading essentially at cash value which has always been a great time to accumulate this stock…for long-term investors this is a low risk opportunity with very significant upside potential as Greencastle has demonstrated before.
Richfield Ventures (RVC, TSX-V)
Richfield has been on fire the past few weeks and closed Friday at $2.15, a 28 cent gain on the week…drilling starts next month at Richfield’s Blackwater Project in central British Columbia which has world class potential as a bulk tonnage, open pit deposit…the stock, however, has become extremely overbought based on Stochastics and RSI, and right now the only thing that will likely force it into retreat is a broad market decline – an event that has become increasingly likely as we outlined above…so we do envision a pullback in this stock, below $2.00, and a cleansing of the overbought condition, before another possible dramatic move to the upside.
Colombian Mines Corporation (CMJ, TSX-V)
Colombian Mines has been another star performer in our portfolio, hitting a new 52-week high of $1.62 this past week…CMJ is currently drilling its Yarmualito Property in Colombia and has also now completed its recently proposed private placement at 95 cents (4.1 million shares)…the stock closed Friday at $1,39, up 24 cents on the week…any significant pullback in CMJ triggered by a broad market decline would make for a very attractive buying opportunity, especially around the $1.00 level…CMJ is a well managed company with a high quality portfolio of exploration projects in Colombia.
