Gold,Canadian Banks and the TSX

Oakville, ON, Canada - Canadian equity markets closed out the week soft, after triple digit down days on Thursday and Friday, led by weakness in gold producers and financials. On the back of a 4% plus drop in gold bullion, producers gave up 5.29% on Friday alone and also "gapped down" doing it. This pattern typically suggests the potential for further selling follow through. According to Robert "Hap" Sneddon, President & Portfolio Manager of CastleMoore, "this may set up another 10-15% sell off this week. When you have over 85% gold bulls and like number for greenback bears, its doesn’t take much to change things" Barrick Gold, the leading global producer, was off almost 9% itself and traded more than 10 million shares. Barrick reduced it’s hedge book over the last few years making it more vulnerable to price swings.

The TSX also saw pressure from the financials, which sold off after reporting decent earnings from most issuers. Royal Bank capped off the week with exceptional volume, declining 2.61% after just meeting analyst’s expectations. According to Sneddon, "the bellwether bank, RBC, is susceptible to selling down to $48.00 now that we saw the stock break support of its 50 day average at $56.50 on big volume. Forty-eight is also deep support where you find its 200 week moving average. There’s some harmony there”

The overall index made a year high of 11,802 on Wednesday before retreating into the weekend to 11,510. Sneddon, whose firm properly called the market downturn last year and the financials sell off in 2007, is cautious on the week ahead. “The TSX is sitting bang on its 50 day average now. A little follow through from here this week and we don’t get many players stepping back in until a low 10 handle – 10,200 to 10,300. At the same time, markets have been exceptionally resilient and if it can hold in here it can run up 12,000 where we find serious overhead resistance.”

For more information or interviews, please contact Matthew Bergin (905) 847-1955 or matthew@castlemoore.com

CastleMoore is a Canadian-based global asset allocator specialising in progressive discretionary portfolio management that blends technical and macro fundamental methodologies to manage client portfolios. CastleMoore Inc. buy, hold and know when to sell.