When does the Dow closing 40 points lower feel almost as good as closing up 300 points?

The Dow was down 351 points earlier in the session on news that some took as a potential “Constitutional crisis” on Friday, which would certainly be a black swan event.

The Washington D.C. news derailed a promising session that could have extended Thursday’s stratospheric rally; nonetheless, the Dow enjoyed its best week of the year. Moreover, it turns out that bombshell news headline from ABC News wasn’t entirely honest; in fact, it might have been a non-event if reported properly.

Perhaps it points to an underlying anxiety. However, when the mainstream media starts talking “Constitutional crisis,” even the most bullish of investors would consider selling.

Then there was the Senate finally passing its version of the tax reform (okay, cuts might be a better description, but I’ll take it), setting up historical action on taxes that will have a positive impact on the economy.

Note: I would have preferred spending cuts and less spending everywhere other than defense.

The stage is set for a snapback rally; although Friday’s jobs report looms large this week.

Key Investment Themes

• There is a major rotation out of technology going on.
• The revival of the beaten-down, especially brick-and-mortar retailer, as Macy’s announced it was hiring 7,000 temp holiday workers.
• Crude oil spurted on a delayed reaction to the Organization of the Operating Exporting Countries (OPEC), extending production cuts through 2018, and holding Libya and Nigeria in check from cheating.
• Crude oil is holding up even as US producers have resumed bringing oil rigs online. While significantly off from the all-time high, the count is up big this year:
  • Total Rigs +42%
  • (PBT) Permian Basin +49%

I think everyone should have exposure to the Permian Basin in their stock portfolio. There are a lot of names I like; however, my favorite is Concho Resources (CXO) because I think it could rally to $200 next year.

Today’s Session

Turns out that report from ABC News that torpedoed the market on Friday was somewhat disingenuous with respect to when General Flynn was asked to reach out to future Russian counterparts.  In fact, the real story paints the picture of people eager to go to work for the American public, which just entrusted them into office.  

Meanwhile, it’s the return of the megamerger with CVS taking out Aetna in a $69.0 billion cash and equity deal.  That’s a friendly deal, but the Broadcom offer for Qualcomm is turning hostile.  Add to the mix the takeover news for General Cable, which is fetching a 35% premium.