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.
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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.
