J.D. DURKIN: Good morning, Action Alerts Plus subscribers. And of course, hello, to the one and only Chris Versace. Good morning, Chris.

It has been, to say the least, a busy few days both for the portfolio, as well as for the market as a whole. So let's kick things off with a look at some of your latest moves. Chris, you trim the club's position in United Rentals after we talked all about it in one of your biggest wins during the monthly call we had last week.

Chris, how did you know it was actually time to ring the register yet again?

CHRIS VERSACE: Well, there were two big things that happened, J.D. . And remember, we were talking last Wednesday ahead of the Fed meeting. And what did the Fed deliver?

A dovish tilt. They kind of penciled in some rate cuts and just signaled in some nice love, if you will, for the market. And what did we see? A number of stocks-- not just the overall market, but especially those that are kind of interest rate sensitive really take off. And that included United Rentals.

Remember, that we've got all this infrastructure spending that's going on. But there's still borrowing costs tied to it. The expectation for lower hurdle rates on those deals probably accelerated expectations for what we're going to see in 2024-2025. And as a result, J.D. , URI shares simply popped. They went from around 520 to 530, 540, 550, 560-- further extending our gains, but also pushing them way deep into overbought territory. So, what did we do?

Well, we did the prudent thing and we took another slice of United Rentals off monetizing those big gains. But look, we still have a lot of exposure to United Rentals. The why on that is because of what we expect to see, again, develop in 2024-2025, potentially 2026 with all this stimulus, all this building. And we could even see another aspect to it come on stream. Yes, the potential return of residential construction as we see the Fed go from talking about rate cuts to delivering them.

J.D. DURKIN: Absolutely, something we will be tracking very closely. Let's talk about BofA, Chris. We have a member wondering, why did you trim ahead of Bank of America's December 29 dividend payout?

CHRIS VERSACE: That's a fair question, right? I mean, look, we look forward to dividend payments. And generally speaking, we like to hold on to a stock ahead of a dividend payment. I'm sure we're going to talk about Costco later this morning, but that's another great example of that. Given the sizable dividend they just announced, we want to capture all of that.

But here's the thing, J.D. , with regard to Bank of America. Boy, from around $24, $25 bucks to where it closed last week, talk about a barn burner of a move. And as much as we like Bank of America's dividend, the reality is it's about $0.24 a share. Not exactly tremendous against the size that we've seen in Bank of America shares in and of themselves.

So, far better to lock in that slice of gains then wait for the dividend. But remember too, we do have again here a meaningful exposure to Bank of America and we will capture a meaningful amount of dividend income as we enter 2024 given the December 29 dividend date.

J.D. DURKIN: Chris, ask and you shall receive, my friend. You talk Costco. Let's talk Costco. Another winner of the week, of course, COST, after what you called gold star earnings results. I know you're watching a pretty bullish catalyst on the horizon. What has you so excited?

CHRIS VERSACE: Well, I mean, look, the company just continues to deliver, right? We could size up their same store sales against retail sales numbers against other retailers. They continue to take wallet share. But the two big things, J.D. , one I just alluded to is this monstrous special dividend. And yes, we do want to be around to collect that.

But the other thing is this topic that's been kind of kicked around pretty much all of 2023-- when are we going to see Costco raise the membership fee that it charges? Again, on the earnings conference call, no clear decision when it's going to happen. But we do know it's not if, it will happen at some point.

And here's the deal with this, Costco's membership fee income, depending on the quarter-- you know, 50% to 70% of its net income. So if we see a high single digit, perhaps low double digit increase, that's going to be a meaningful adjustment higher in net income expectations. That means earnings per share are going to go higher. And we will see, people, across Wall Street once again raise their price targets.

That's what we're sticking around to see, especially as the company continues to grow its warehouse footprint.

J.D. DURKIN: Well, Chris, without a doubt the dust still settling from that big post-Fed market rally. Now during that time, you've upgraded the panic point. We've talked a lot about panic points. We love that conversation.

You've upgraded them for Axon, Applied Materials, BofA, Coty, United Rentals, and of course, Vulcan Materials as well. Those decisions, were they purely about market strength or did something about those actual names stand out to you?

CHRIS VERSACE: Now for the most part, J.D. , we've seen all of those stocks really melt up very, very nicely, driving some nice profits in the portfolio, which we can see by the overall rising return. So what we've said to members is that panic points, they're areas at which we want to double down, retest the thesis because perhaps the market is telling us something. We want to listen and double-check our thinking.

On the other hand, as the market moves higher, we want to increase our panic points because at some point we would love to have them above our average cost basis for each position. And that's where we are now in particular with Axon. But I think we're going to get there with other positions as well.

The thinking there is that once the panic point crosses over our average cost basis, we have the opportunity to I won't say guarantee a locked in profit, but the odds of it, they're pretty good.

J.D. DURKIN: All right, since we're always looking to give members a bit of a better understanding into not just the names in the portfolio, Chris, but how the portfolio itself actually works, explain this for us. Walk us through why you downgraded Axon to a 2 and how it fits into your larger rating system?

CHRIS VERSACE: Sure. So again, Axon shares have been on a tear over the last several trading sessions. And they are moving ever closer to our 260 price target, which by the way, we've increased that price target a couple times already this year. The back for that is a couple of things. You know, the continued outlook for very strong public safety spending, not just federal, but state and local. But also the margin shift inside of Axon as the recurring revenue stream, higher margin cloud becomes a greater part of their mix, dropping more earnings to the bottom line.

But sometimes, J.D. , stocks get a little bit ahead of themselves. And that's exactly what happened here with Axon. So again, we took the opportunity to monetize some of those big gains. But we don't want members committing fresh capital following such a strong run. Hence, the downgrade to a 2.

J.D. DURKIN: It's been a quieter week. It's not really a shortened trading week. It's a regular trading week. But it feels like a holiday week here.

As we kick things off, it won't be so quiet, of course, on the data front come Friday. How important, Chris, is Friday's personal consumption expenditures data in terms of continuing the post-Fed rally we've seen, at least the last few sessions?

CHRIS VERSACE: I think it's going to be really important. Again, just for newer members, what J.D. 's alluding to is the PCE Price Index. This is one of the Fed's preferred inflation metrics. We, and everybody else, will be focusing on what the core PCE Price Index has to say.

Setting this up, Fed Chair Powell last week, although they did signal some rate cuts coming, the big question is, when will those rate cuts start? And not only did Powell come out and say that, hey, we need to see further progress on inflation before we get moving on these cuts, we also see a barrage of Fed heads coming out over the last few days as well, kind of saying rate cuts not yet on the table for the Fed, still kind of kicking them around. So we're going to want to see in Friday's data further progress on the inflation front.

And it's going to be important, J.D. , because if we don't get it, it could really upset the market narrative. And I wrote about it in our opening comments this morning. But here's the thing, folks. We have seen expectations for Fed rate cuts grow to six, possibly seven rate cuts just in 2024. Remember, the Fed has only penciled in 3. And it is an election year.

The odds of that happening are very low at this point. The economy continues to be on firm footing. And my concern here, J.D. , is-- and I talked about this again in our note this morning-- the market is overbought. The McClellan Oscillators are overbought. The fear in greed index is back into extreme greed. It's not going to take a lot following huge double digit moves in the market since late October to signal to some folks, short-term traders, oh, time to take some chips off the table.

And that, J.D. , is why we continue to hold our inverse ETFs. Just in case, as much as we want to enjoy the continued market rally, something goes wrong, we want to be protected.

J.D. DURKIN: We love a good McClellan Oscillator reference whenever we do these, so I appreciate that for sure. And it's good context overall. Chris, before I let you go, is there anything else, I wonder, that you watching that you would want our members to keep in mind as well?

CHRIS VERSACE: I kind of jumped the gun there with my answer to the last question, J.D. . But it would just be this, we are enjoying a pronounced rally in the market and it's doing wonders for the portfolio. But investing, it's kind of a lot like driving. You got to have one eye on the car right in front of you. But the other eye, it's got to be focused in on what's coming down the road at you.

And that's why when we take all these things into account, we want to make sure that we continue to walk a prudent path. There's a great Wall Street adage out there. You know, bulls make money, bears make money, pigs get slaughtered. We want to avoid being too piggish in this market. That's why we've been doing some of the moves that we have that we talked about earlier in today's show. And I suspect that we'll continue to walk that prudent path.

J.D. DURKIN: That's just wonderful imagery. We're going to leave it there. What better place to leave it. That's going to do it for today. Chris, thanks for joining us.

CHRIS VERSACE: Thank you, J.D. .

J.D. DURKIN: Have a great trading day, one and all, to all subscribers at home watching. And as always, thanks for watching. We will see you again soon.