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Greencastle Resources (VGN, TSX-V) is one of our favorite companies with great prospects for 2011.  With a current market cap of only $15 million, Greencastle has $6 million in its treasury and takes in over $100,000 per month in an oil royalty valued at over $5 million.  But the new driving factors for this company are its current Gold assets in Nevada and British Columbia (three properties in total), and the strong near-term possibility of the addition of an “advanced” fourth Gold project as alluded to by the company in a recent news release.

Since October Greencastle has become much more active in the Gold exploration space and as a result, its stock price has appreciated considerably as we predicted it would.  However, there are fundamental and technical factors that suggest Greencastle’s advance since late October is just the first chapter of an exciting new story for this company.  President and CEO Tony Roodenburg has enjoyed great success with Seafield Resources (SFF, TSX-V) and we have every reason to believe that he has big things in store as well for Greencastle.

After hitting a new 52-week high of 44.5 cents Dec. 6, Greencastle has pulled back to the low 30’s where it is extremely attractive and has strong technical support as outlined by John in a VGN chart update below.  As of 7:10 Pacific time this morning, Greencastle is unchanged from yesterday at 33 cents.

John: Yesterday, Greencastle Resources (VGN, TSX-V) opened at 37.5 cents, its high, and then drifted to a low of 32.5 cents before closing at 33 cents for a loss of 3.5 cents (-9.59%) on CDNX volume of 276,000 shares.

Looking at the 6-month daily chart, we see that at the end of October Greencastle started a major move to the upside which culminated in a high of 29 cents 8 sessions later on November 9 on a volume of 1 million shares. This move from 14 cents to 29 cents formed the Fibonacci seed wave. The extrapolated near-term target from this seed wave (blue Fibonacci set) is shown as 39 cents.

After the peak at 29 cents, Greencastle consolidated for 18 sessions between 22.5 cents and 30 cents.   Then with a volume of over 1.6 million shares on Dec. 3, the price moved from 29 cents to 35 cents followed by a new high of 44.5 cents Dec. 7 on huge volume of 2.6 million shares. The price broke through the 39 cent Fibonacci target level primarily due to a lack of sellers (the bears were slow out of the gate, so to speak).  During the day the price retraced to close at 38.5 cents, exactly at the Fibonacci target level.

Over the last 6 sessions the price has retraced to its close of 33 cents.   The black Fibonacci set shows the retracement from the high at 44.5 cents and shows the close yesterday is exactly at the 38.2% level of 33 cents.   This level should provide solid support (green horizontal line). The EMA-20 (exponential moving average) provides close bullish support and is sitting at 31.5 cents.

The green set of Fibonacci levels shows that the next target level is 54 cents (this is not a BMR price target as we don’t give price targets but a theoretical Fibonacci target based on technical analysis as a guide for investors).

Note that the volume during this retracement has been relatively low. Readers should also note that without using TA to analyze this stock, all we would see is that the stock dropped nearly 10% yesterday.  On that information alone one may ask, why is your outlook for Greencastle so bullish?  The strong fundamentals for this company have already been outlined, but with technical analysis we can see that this stock has had a healthy correction within the context of a bullish overall uptrend and the pullback represents opportunity.

Looking at the indicators:

The RSI has unwound from an overbought position and is sitting at support at 58% – bullish.

The ADX trend indicator has the +DI (green line) at 33 and above the -DI (red line) at 19. The ADX (black line) trend strength indicator is turning down but high at 42, indicating the bullish uptrend is still strong.

The Chaikin Money Flow (CMF) shows that buying pressure has been steady during this consolidation – bullish.

Outlook: Greencastle has gone through a very normal pullback and is in excellent shape technically.  The stock price is not expected to fall much lower than 33 cents due to the strong Fibonacci and moving average support. This stock offers the savvy and patient investor a very good opportunity which is why both Jon and I hold personal positions in Greencastle.