GOLD AND SILVER EXPERIENCE PROFIT-TAKING BUT TREND REMAINS UP -- DOW AND S&P 500 CLEAR 50-DAY AVERAGES -- FOREIGN STOCKS SHOW IMPROVEMENT AS WELL -- VANGUARD ALL-WORLD EX-US ETF OFFERS BETTER FOREIGN DIVERSIFICATION THAN EAFE

GOLD CLOSES LOWER... My earlier message showed the Gold Trust (GLD) trading at a new record high. By day's end, however, both gold and silver experienced profit-taking. Chart 1 shows GLD closing lower on rising volume (silver did the same). Chart 2 shows the Market Vectors Gold Miners ETF (GDX) closing lower at its March high. That prevented an upside breakout. Although the trend of precious metals assets remains higher, today's lower close looks like a short-term setback.

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Chart 1

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Chart 2

DOW AND S&P 500 CLEAR 50-DAY LINES... Charts 3 and 4 show the Dow Industrials and S&P 500 closing well above their 50-day moving averages. That's a strong sign that the recent downside correction run its course. The only thing missing was volume which remains on the light side. Chart 5 shows the Nasdaq Composite closing right at its 50-day line. Volume, however, did pick up a bit which is encouraging. Foreign stocks did even better.

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Chart 3

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Chart 4

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Chart 5

FOREIGN STOCKS LEAD US HIGHER... Foreign stocks are helping lead US stocks higher. Chart 6 shows Emerging Market iShares (EEM) closing at a new two-month high. Chart 7 shows the Vanguard FTSE All-World ex-US ETF (VEU) closing well above its 50-day moving average. It's normally a good sign for US stocks when foreign markets are doing better. There's a good reason why I'm using the VEU in Chart 7 instead of EAFE iShares to measure the trend of foreign markets. Chart 8 shows why.

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Chart 6

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Chart 7

BETTER GLOBAL DIVERSIFICATION WITH VEU ... A lot of investors use EAFE iShares to diversify into foreign stocks. The EAFE, however, includes Europe Australasia and the Far East but nothing in North or South America. A better foreign stock diversifier can be found in the **Vanguard FTSE All-World ex-US ETF (VEU). The blue line in Chart 8 is a relative strength ratio of the VEU divided by the EAFE. It shows the VEU outperforming the EAFE over the last two years. From the start of 2009, the VEU gained 58% versus 40% for the EAFE. A lot of the VEU's stronger performance comes from a 73% gain in Canadian stocks. The VEU also has 25% weighting in emerging markets including Latin America which gained 134%. Another ETF (not shown) that offers better foreign stock diversification than the EAFE is MSCI ex US Index Fund (ACWX). The ACWX gained 53% since the start of 2009 which lagged the VEU but still beat the EAFA. So if you're looking for a stock ETF that offers foreign stock diversification, the Vanguard FTSE All World ex-USE ETF (VEU) or the MSCI ex US Index Fund (ACWX) does a better job than EAFE iShares (EFA).

Chart 8