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As we get set for a new market day, BMR’s technical analyst takes a detailed look at the CDNX chart after Monday’s reversal and yesterday’s 43 point plunge.  John’s comments are much in line with my article yesterday which emphasized that this pullback is something to embrace, that the likely worst-case scenario is a 4% further drop from current levels:

The CDNX could still fall a little further but the chart says there is credible support nearby.

John: The CDNX received a jolt yesterday, falling over 43 points and “landing” at 1622.

This was not an easy day to take in strike but it is so much easier to deal with your market emotions if you learn to read charts and become familiar with some basic technical analysis.  So with this chart I will outline the current situation and what we can likely expect in the near future.

Looking at the chart, we can see we were forewarned of weakness by the divergence between the Index level and the RSI.  This is denoted by the horizontal blue line on the Index level and the downsloping blue line on the RSI.

On the chart I have put two orange circles around the two recent highs at the same level.  Together this forms in TA language a “Double Top”, a reversal pattern, which signifies the CDNX has run out of steam – for the time being at least.  We see that from the first high, it retraced to the Fibonacci 38.2% level and then tried to go higher again but failed.

The horizontal green lines show levels of support so we can expect the support band between approximately 1550 and 1600 to hopefully prevent the Index level falling further.

Jon has already mentioned that the 50-day SMA and 100-day SMA are also providing support – these are shown on the chart as blue and red lines respectively.

The bottom two Fibonacci levels coincide with the support levels which gives these support levels a lot of credibility.

The ADX trend indicator shows the ADX (black line) going down, showing a weakening uptrend, and we also see that the -DI (red line) has crossed up over the +DI (green line) indicating that the weak trend has changed from bullish to bearish but this could easily develop into a consolidation phase.

Now, what precisely is going to happen I cannot tell you but I can give you an idea what to look for.

First, I feel we have enough strong support available to stem this tide.  When the decline ends I would not be surprised to see a “hammer” candle just like the ones shown in the four green circles.  As you can see, “hammers” occur quite frequently when the direction reverses.  Look out for it.

After the decline has stopped I expect to see some consolidation to create a solid base, similar to what occured in December of last year and last month before another run-up and don’t forget we are heading for the summer doldrums.

You may not like days like yesterday but to be successful in investing/trading you must not panic and you won’t if you understand what’s going on.

Here’s a little extra note:  You see the two black circles on the chart.  Well, the top one shows an example of an “exhaustion gap” which occurs at the end of a run-up when there is a frenzy of buying but the sellers gradually drive down the buyers, forming a black candle (opens high and closes lower).  The black circle below shows when “exhaustion gaps” occur there is heavy volume.

Outlook:  We may see the Index fall a little further but the chart shows there is a lot of credible support nearby.

In the wild west of the CDNX, what we’re seeing right now is par for the course.  Bullets are flying all over the place, so does one quickly cash in his chips, run and hide?  Not a chance – this is a time, we believe, to be aggressive and jump right into the battle.  Hopefully you have plenty of ammo stored up.

As of 10:30 am Pacific time, the CDNX is down a whopping 51 points to 1615, the Dow is off 236 points and the TSX has dropped nearly 200 points.  Undoubtedly, there are some scared investors out there and we all know emotion rules the market.  The hardest thing to do is control your emotions and keep a level head when you see this kind of a drop.  The natural instinct is to go with the crowd.  Right now the crowd is saying, “Let’s sell in May and go away.”  The crowd is often wrong.

A minor correction has clearly set in with the CDNX but we’ve seen this pattern several times before over the last year-and-a-half and each time it has been a great buying opportunity.  A wise and prudent investor should always maintain a healthy cash position in their account to take advantage of situations just like this.

The CDNX is closing in on its rising 50-day moving average (SMA) which is just above 1600.  The market will find strong support there, and any breach of the 50-day SMA will find secondary HUGE support at the rising 100-day SMA (1560) which the CDNX has consistently stayed above since early 2009.

RSI readings on the CDNX right now are very close to where they were at previous market bottoms in July of last year and February of this year.

The CDNX is certainly overdue for a major correction of 20% or more, but the timing of that is uncertain.  Given the strength of Gold and the overall commodities markets right now, that kind of a steep correction at the moment seems very unlikely.  The much greater probability is a downside move to the 50 or, at worse, the 100-day SMA.  Since we’re already quite close to that right now, it is the time to be a BUYER in this market and not a seller.

Gold is down $15 to $1,167, but Gold’s overall technical picture is still very strong and an imminent minor pullback was something we stated over the weekend was likely going to happen.  Gold has been pretty relentless in its advance recently, and the TSX Gold Index was clearly overbought, so the fact Gold is taking a breather right now is nothing unusual.  In fact, it’s a welcome development in the sense that it helps unwind overbought conditions and set the stage for a fresh move to higher levels.

The U.S. Dollar Index is up sharply this morning, 3/4 of a per cent to bring it just above 83 cents, which is putting some pressure on Gold which was higher most of the morning…Gold is now off $9 an ounce to $1,173 as of 8:00 am Pacific time…as we have already pointed out, the fact Gold has been holding up so well and even advancing in the face of a powerful U.S. Dollar is unusual and ultimately very bullish for precious metals…the CDNX is struggling this morning…yesterday’s early morning reversal – it ran within a few points of its 1691 52-week high and then closed down for the day – was clearly a bearish sign, and the Index is off another 35 points this morning to 1631 with the Dow down over 200 points and the TSX off 150…the Venture has dropped below its 20-day moving average which is now threatening to decline for the first time since late January…this market found strong support last month between 1635 and 1640, so we’ll see if that area holds up again this time…if not, a drop to the rising 50-day SMA just above 1600 is probable…we stress that these pullbacks in the Venture over the past year have consistently proven to be good buying opportunities…the CDNX has also hit a point on the RSI (50) where powerful upside moves have originated over the last year…Gold Bullion Development (GBB, TSX-V) dropped to 37.5 cents but has recovered and is now unchanged on the day at 39 cents…GBB has very strong suppport in the 35-37 cent area…North Arrow Minerals (NAR, TSX-V) should also be accumulated on any weakness…it hit 25 cents this morning but has pulled back to 23 cents with this morning’s across-the-board selling…Sidon International (SD, TSX-V), which is expected to close its $750,000 financing very soon, is down a penny to 7 cents where it has strong support…

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Gold is off its high of the day…it’s now up just $2 an ounce to $1,181 as of 7:55 am Pacific time…the CDNX jumped as high as 1687 this morning but has also pulled back and rather sharply…the Venture is now down 3 points to 1671…a move through 1700 is important for the CDNX this month from a technical standpoint…it would also give a very bullish signal as far as gold and commodities are concerned…BMR is putting its money where its mouth is…we were a buyer this morning of North Arrow Minerals (NAR, TSX-V) as we continue to accumulate a position in a company led by mining legend Gren Thomas…North Arrow is currently drilling its highly prospective Beaverdam Lithium Property in North Carolina which holds excellent potential as a possible producer in an area where all the infrastructure is in place for a lithium mine…that alone is enough to propel North Arrow to significantly higher levels, but its diamond properties at Lac de Gras (100,000 acres in total) are incredibly interesting and could ultimately send this stock much, much higher…North Arrow President/CEO Gren Thomas has been working closely again with another industry icon, Dr. Chris Jennings – the two of them discovered the Diavik deposit at Lac de Gras and the richest kimberlite pipe in the world in the early 1990’s…using his proprietary technology, Jennings has identified a large number of high priority kimberlite targets over North Arrow’s holdings which the company is going to aggressively pursue in a major drill program…after reviewing maps and spending considerable time with Thomas last week, we believe North Arrow has an excellent chance of making a major new discovery at Lac de Gras…the diamond market is heating up as Chinese buying is eating significantly into supply…North Arrow is off a penny this morning to 23.5 cents…this is clearly an undervalued situation relative to its enormous potential and a major home run opportunity for investors at current levels…Gold Bullion Development (GBB, TSX-V) is up a penny to 41 cents…the company has strengthened its board with news this morning of the appointment of Brian E. Robertson to its board of directors…Robertson brings more than 35 years of extensive operations experience in both large scale open-pit and underground mines in Canada and offshore…Sidon International Resources (SD, TSX-V) is ahead another half penny to 8.5 cents on over a million shares in the first hour of trading…we’ll have more on Sidon very soon as this is another company we’re very excited about right now…the mystery of Seafield Resources (SFF, TSX-V) continues…Seafield has dropped below its 200-day moving average, trading at 17.5 cents, and is now in technical trouble with the looming possibility of a soon-to-be declining 100-day moving average…we see no explanation for the current weakness in Seafield other than perhaps a reduced level of investor interest in exploration plays in Colombia after new environmental legislation pertaining to mining was introduced there just recently…the new regulations, however, only apply to operations above 3,200 metres which excludes Seafield’s properties…

If you’re looking for a stock you can flip for a few pennies in a day, a week or even a month, then save yourself the time and read no further.  This one’s not for you.

On the other hand, if you’re thinking both STRATEGICALLY and BIG like a billionaire, and you have a reasonable timeline, then I strongly suggest you read on because the person you’re about to listen to could help make you a FORTUNE.

A few days ago I had the pleasure of spending nearly five hours with Mr. Gren Thomas in Vancouver.  Who is Gren Thomas, you ask?  Well, he happens to be an icon in the mining industry and one of the richest men in all of North America.  And he’s running a company called North Arrow Minerals (NAR, TSX-V) that you absolutely need to know about if you don’t already.   NAR has been flying under the radar and that’s exactly the kind of situation we love at BMR when we discover such a great opportunity like this.    We introduced North Arrow about a month ago at 20 cents.  We’re up just over 20% so far, but that’s nothing compared to what I believe could be in store for this stock.

I’m a gold enthusiast, but I also recognize the importance of at least a little bit of diversification in my portfolio.  North Arrow does have some gold and base metal properties, but it’s their diamond and lithium holdings that are potentially so valuable and could drive this stock through the roof in the coming weeks and months. Gren Thomas has enjoyed incredible success in this business and he’s determined to build another huge winner for himself and shareholders in North Arrow, which has been trading on the TSX Venture Exchange for just three years now.

We suggest you check out our April 7 story on North Arrow which reviews the company very thoroughly.

I have a theory about money and it’s a pretty simple one:  If your goal is to make a lot of it, and create as much wealth as possible, then surround yourself with people who have it and have earned it legitimately and honestly.  Find out what they’re doing and investing in.  There’s no need to try to reinvent the wheel.  Discover what somebody like Gren Thomas is doing and invest with him.

Gren’s chances of hitting it big again at Lac de Gras are very real (he has also partnered again with his good friend Dr. Chris Jennings – the two of them discovered the richest kimberlite pipe in the world at Lac de Gras in the early 1990’s). Gren is also very bullish on lithium, and North Arrow is now once again drilling its Beaverdam Project in North Carolina which has a very good chance of becoming a producer.  The market hasn’t picked up at all yet on that emerging story which has a lot of similarities to Canada Lithium (CLQ, TSX-V).

We interviewed Gren at length and below is a link to Part 1 of that interview as we discuss lithium and what North Arrow is doing in that space:

BMR Interview With Gren Thomas

There has been a noticeable pick-up in activity in North Arrow Minerals (NAR, TSX-V) over the past month – the stock has been under accumulation since the middle of March – and we have every reason to believe this is just the start of something potentially very big in the making.  NAR’s bullish technicals are sending us a clear signal – the market is starting to recognize the value of its diamond and lithium projects.

All of North Arrow’s moving averages are in bullish alignment.  As our technical analyst points out below, NAR seems poised to blast through 25 cents and take a run at resistance between 35 and 40 cents:

North Arrow Minerals has formed a bullish ascending triangle and is threatening to break through the top of that triangle (horizontal blue line).

John: Looking at the 18-month weekly chart, we see that over the past 16 weeks North Arrow has been consolidating after a move up from 14 cents to 24 cents in one week when only 800,000 shares were traded in a range of 15 to 25 cents.  During the last 7 weeks it has gradually climbed, closing Friday at 24.5 cents.

This trading has formed a bullish ascending triangle and the stock, although low in volume, is threatening to break through the top of the triangle (horizontal blue line).

The dotted green lines show a resistance band between 35 and 40 cents.  If the price breaks above 25 cents this coming week, it should have no problem reaching the resistance starting at 35 cents.    The volume needs to increase to ensure the force required.

The RSI indicator is rising as it shows the strength increasing.

The Acc./Dist. indicator shows the stock has been under accumulation since the middle of March, 2010.

The ADX trend indicator has the ADX (black line) trend strength indicator rising and the +DI (green line) is above the -DI (red line), confirming the trend is up and getting stronger.

Up until now at least, North Arrow has been a fairly thinly traded stock.  Liquidity in NAR is not what it’s like in Gold Bullion, Sidon or others in the BMR portfolio.  However, as Jon has pointed out, investors shouldn’t go into North Arrow with the intention to “flip” this stock in a few days, a week or even a month.  This is a special situation that has the potential of delivering astonishing returns over a period of 6 to 9 months.  Over the short term we’re likely to see increased accumulation of North Arrow up to the resistance band between 35 and 40 cents.

The outlook for North Arrow is clearly bullish but higher volumes are required to sustain a major move up.

CDNX and Gold

The CDNX closed a strong month of April at 1674, a very modest 3-point advance for the week.  For the month the Index was up 97 points or 6.2%.  The CDNX, which is a very accurate leading indicator, was much more cautious than the TSX Gold Index this past week which jumped 6.6% as Gold itself broke through important resistance around $1,170.  What this tells us is that Gold may not be quite ready yet to challenge its all-time high of $1,225 – we could be looking first at a minor pullback or a brief period of consolidation.  The TSX Gold Index has advanced 8 consecutive days and is in overbought territory, so it is certainly due for a minor correction.  The CDNX remains very healthy from a technical standpoint and all of its moving averages are in bullish alignment, but it will need to break out to a new 52-week high and get over the 1700 level during the first half of May for a needed momentum boost.

The BMR Portfolio

Gold Bullion Development (GBB, TSX-V)

Gold Bullion enjoyed another solid week with continued high volume and a 2-cent jump to 40 cents…nearly 20 million GBB shares have changed hands over the last 6 trading sessions following the release Thursday, April 22, of the LONG Bars Zone Preliminary Block Model with an estimate (non-compliant) of 2.4 to 2.6 million ounces within a defined area of the LONG Bars Zone…the stock is finding strong resistance at 42 cents and strong support at 36 cents…as long as the overall market remains in a neutral to bullish state, GBB should have little problem reaching new highs in the near future especially with a new round of drilling (20,000 metres) set to begin at the LONG Bars Zone…the cheap 7-cent private placement stock that became free trading April 23 has likely now been largely absorbed by the market, given the very high volume recently, and that certainly has bullish implications for the share price…

Seafield Resources (SFF, TSX-V)

The speculative fervor for the Colombian gold plays seems to have waned considerably recently, especially after the Greystar (GSL, TSX) news, and Seafield has suffered accordingly…the stock closed Friday at 19 cents, a 3.5 cent weekly loss, and it’s clearly struggling to stay at or above its rising 200-day moving average…Seafield is oversold but it needs to break out of its doldrums very soon in order to avoid the onset of a declining 100-day moving average…Seafield will be ramping up its exploration efforts in Colombia this month, which will likely include the start of drilling, so we can’t help but think the stock has probably bottomed out at current levels…from a valuation standpoint, the stock’s market cap of $14.4 million seems cheap given its cash position and strong portfolio of properties in Colombia, Mexico and Ontario…

Sidon International Resources (SD, TSX-V)

Sidon was a star performer this past week, jumping 1.5 cents to 8 cents on a whopping 19 million shares…the interest in Sidon is related to its option to acquire an 80% interest in the highly prospective Morogoro East Gold Property in Tanzania, 100 kilometres south of Canaco’s (CAN, TSX-V) very promising Handeni Gold Project…the accumulation in Sidon since late March has been nothing short of spectacular…the stock broke through important resistance Thursday at 7 cents…the company is in the process of completing a financing for $750,000, showing that money is lining up for Morogoro…

Kent Exploration (KEX, TSX-V)

Kent shareholders overwhelmingly approved the company’s proposed spinoff of its Gnaweeda Gold Project into Archean Star Resources at Friday’s AGM in Vancouver…Kent shareholders will receive 1 share of Archean Star for every four shares of Kent they own…the effective date has not yet been announced, but we anticipate it’ll be around the end of this week…Archean Star is being financed at 25 cents and should begin trading on the TSX Venture Exchange within 2 weeks…Kent closed at 21 cents Friday, a 2.5 cent increase for the week…BMR sees exciting times ahead for Kent and Archean Star shareholders…

Richfield Ventures (RVC, TSX-V)

Trading volumes have picked up considerably in Richfield over the past couple of weeks as drilling continues at its Blackwater Gold Project in central British Columbia…Richfield, which is running into technical resistance at $2.20, closed Friday at $2.01…it was virtually unchanged on the week…the stock is building a nice base around the $2 level and RSI and Stochastics are both neutral at the moment…given the multi-million ounce potential of Blackwater, we expect it’s only a matter of time before Richfield powers significantly higher…

North Arrow Minerals (NAR, TSX-V)

We are extremely bullish on the prospects for North Arrow which is led by Gren Thomas, a 69-year-old mining legend who seems to be reinvigorated with this great little company…North Arrow holds 100,000 acres of prime real estate at Lac de Gras where it has an excellent chance of making a major diamond discovery…the Diavik trend projects through the centre of North Arrow’s property while the Ekati trend projects through the western margin…Thomas has reunited with an old friend, Dr. Chris Jennings, to explore North Arrow’s large landholdings at Lac de Gras…the two of them discovered Diavik and the richest kimberlite pipe in the world in the early 1990’s…they’re hoping for a repeat performance with North Arrow in 2010…Jennings has developed a proprietary technology that has identified a large number of high quality kimberlite targets on North Arrow’s 100,000 acres…the company is also currently drilling its highly prospective Beaverdam Lithium Property in North Carolina…last fall’s program was very encouraging and the possibility of Beaverdam turning into a lithium producer is very real…the property is surrounded by all the necessary infrastructure as North Carolina used to be the world’s most important lithium-producing region…it remains the centre of lithium processing and research and development activities in the United States…North Arrow closed at 24.5 cents Friday, a 2.5 cent jump for the week…a close above 25 cents would confirm a technical breakout with the next area of resistance in the 35 to 40 cent range…

Colombian Mines (CMJ, TSX-V)

CMJ reported very good results from its first three holes at Yarumalito but the stock dropped 21 cents last week to $1.14…again, investors for now seem to have lost their appetite for Colombian gold stocks especially after Greystar’s share price took a beating due to new environmental legislation affecting mining operations in that country at elevations above 3,200 metres…CMJ drilled 125 metres of 0.66 g/t Au and 0.13% Cu at Yarumalito…the two other holes CMJ reported were also very encouraging…we have to agree with the company, based on early results this year, that Yarumalito hosts a significant gold-copper porphyry and sheeted vein system with bulk mining potential…

Greencastle Resources (VGN, TSX-V)

Activity in Greencastle picked up considerably last week with the stock gaining a penny to 14 cents…bids strengthened and the stock got as high as 15 cents…clearly, VGN is undervalued at 14 cents but what management proposes to do to unlock that value remains uncertain…the company continues to collect royalties from the Primate oil field in Saskatchewan ($100,000+ per month)…its foray into an oil and gas area in southwestern Saskatchewan did not pay off…Greencastle has some interesting gold properties in Nevada, but for now it’s just a matter of being patient and waiting things out until President/CEO Tony Roodenburg pulls the trigger on a new project…