4 Can’t-Miss Items for Investors to Watch Next Week

Heading off early next week ahead of the Labor Day weekend? So are many others, including Wall Street traders. As they leave their trading desks, trading volumes can get awfully light. That makes the markets vulnerable — on the upside or the downside — to any news items that are unexpected. With a dearth of corporate news but a boatload of economic releases next week, investors need to stay vigilant.

Here’s a look at four key items to watch:

1) On Tuesday, August 30th, we’ll get the latest reading from the monthly Case-Shiller home price index. The data reflects June prices, and this report is coming off a surprisingly robust tally the prior month that showed a +4.6% gain in home prices in May. In fact, this report has looked a tad better for 15 straight months, after bottoming with an -18% drop in February, 2009. Many of those ensuing months were still negative, but less so as time passed. Now, with a string of three straight positive readings, can we keep it up? Any reading above +5.0% would be a real positive for the markets and could boost housing stocks. Then again, the recent housing data has been so bleak that few will be surprised if the Case-Shiller index slips back from May’s gain. [Read: Pounce on this Sector’s Value Before it Disappears]

2) On the same morning, we’ll also get the latest reading from the Chicago Purchasing Manager’s Index (PMI). Any reading below 50 means the industrial sector is shrinking, while a reading above 50 signals expansion. From a bottom of 32 in March 2009, the index steadily climbed back to 63 by April, 2010. But we’re losing steam: the index slipped to 59.7 in May. If we can stay near the 60 mark, then markets are unlikely to react, but a further downward move toward 55 could be spooky and may lead some to conclude that we’re on our way to breaching the all-important 50 level.

#-ad_banner-#3) On Wednesday, September 1st, we move into the final trimester of the year (where did it go?) and get the latest read from Detroit (and Tokyo, Stuttgart, Seoul, etc.) regarding the latest car and truck sales trends. The report may set the tone for GM’s upcoming IPO. As we taxpayers own GM and hope the IPO sees a lot of demand, we have reason to pull for robust sales numbers.

Industry sales volume remains very low by recent historical standards, but auto makers are now so lean that weak sales no longer means trouble. Importantly, if the entire industry can start to move back up a bit, then this will be a remarkably profitable industry. And it’s been decades since anyone has seen that — at least for U.S. manufacturers. Keep an eye on truck sales relative to car sales. Trucks are hugely profitable, but have been slow-selling. Eventually, when the housing construction industry rebounds, truck sales may soar, as many contractors are holding onto trucks for much longer than intended. [Read: Why this Blue Chip Could Double in Three Years]
4) Friday is the big day, even as many investors and traders will already be at the beach. We’ll get our monthly look at that payroll report and unemployment rate. Expectations are quite restrained in light of the recently-rising weekly jobless claims (although they fell this week). The market expects the unemployment rate to tick up from 9.5% in July to 9.6% in August. Any reading above that could prove troublesome, since trading volume will be so light (which can exaggerate market moves).

Action to Take –> It’s always important to keep cash on hand ahead of these potentially volatile weeks. Any of these data points could lead to an overreaction in either direction since volume will be so light. This is a good time to look at your portfolio, weed out any picks you may have bought a while back but no longer seem suitable in the current economic context. That way, you’ll have some free cash to put in play if the market pushes some names on your watch list down too sharply.

If you’re fearful that this coming economic news will push the market yet lower, you may want to buy a small block of shares of the ProShares UltraShort S&P 500 (NYSE: SDS) exchange-traded fund (ETF) which moves twice as fast — in the opposite direction — as the S&P 500. Of course, any rally in the S&P would prove painful, but if your portfolio is made up mostly of long positions, this ETF is a solid market hedge for volatile times.