Crude oil futures have appreciated 8% in the last two sessions; ideally you have taken advantage of this recent surge. It is my opinion that when we get through the highs from early January we will see a trade back near $100; that being said buy dips in futures and/or options. We would still like to see a lower trade in natural gas before buying for clients but we reserve the right to change our mind if prices fail to break the 100 day MA; that level has supported for the last three sessions.
The indices have probed the 20 day MA but the trend line that has held since September supported today's action. In full disclosure some clients are holding March ES put options at a loss. The Euro and Pound were higher today but we still like the idea of fading rallies in these two crosses. Lean hogs and live cattle continue to surge higher; we are waiting for a set back before re-establishing longs for clients. The likely trade strategy we will implement is getting long futures and selling out of the money calls...stay tuned. Gold was marginally lower and silver marginally higher in two sided trade today. We're operating under the influence an interim low was obtained in both metals last week and suggest gaining bullish exposure.
Grains were higher across the board today but we're looking for a lower entry to be a buyer ahead of next week's USDA report. Most likely in new crop corn and soybeans for clients. We've started to get aggressive clients short cotton again, our suggestion is a bearish options strategy in May contracts expecting a trade 10% lower in the coming weeks. As for this sector we have started to get clients short cotton and coffee looking for lower trade.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results
Political protests (more like riots) in Egypt shook up the financial and commodity markets. Investors flocked from risk and into "stuff" (as Dennis Gartman calls it). In other words, investors put money into hard assets, namely gold and silver. In theory, the move should have triggered a large wave of quality buying in Treasuries but that just wasn't the case. However, there was a firm flight to quality bid in the U.S. Dollar and that leaves the door open for fixed income buying early next week should the equity slide continue.
On the news front, advanced 4th quarter readings on GDP were reported at 3.2%. This was far and away better than the previous 2.6% but shy of expectations at 3.7%. Nonetheless, it shows stability in the recovery and is bearish for Treasuries...it seems as though this was the news that took some of the steam out of today's upswing. That said, although the long bond ended the day with only moderate gains the March futures contract experienced a two-handle rally from the session low.
Negating some of the bearishness of the headline GDP was the chain deflator component of the report that portrayed much less inflation than was previously thought.
Keep an eye on the Yen and the US Dollar Index; during times of uncertainty quality bids often find their way into these currencies and investors will want a "low risk" place to park cash. Strength in these two futures could finally lead to an upside breakout in Treasuries.
Friday's trade was highly headline driven and trade in early next week will be dictated by what unfolds, or doesn't unfold into the weekend.
As we have been saying in recent newsletters, we prefer being bullish on large dips and long volatility. If you have any short options in this market, you might want to lock in profits or exit entirely. Treasury vol doesn't stay subdued for long...
Resistance still lies at 122'15ish in the 30 year bond, but if chaos ensues next week 126ish isn't out of the question. Similar levels in the 10-year note are 121'15 and 123'15.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already factored into current prices, any references to such does not indicate future market action. Treasury Bond and Note Option and Futures Trading Recommendations
**There is unlimited risk in naked option selling.
November 15- Clients were recommended to purchase a 5-year note futures near 119'19ish and purchase a 119'5 put for about 49. This trade enables traders to hold a long futures position for 40 days with risk limited to about $850 plus commissions (more or less depending on fill prices). This prevents traders from being stopped out prematurely and provides unlimited profit potential.
December 9 - Those participating in the 5-year note trade were advised (assuming they had the margin available and were comfortable with the risk) to exit the long put which was acting as insurance. The approximate profit on the put was $1,000 before commissions but this leaves a naked (unlimited risk) long futures and a sizable paper loss to overcome. The move makes it "easier" to recoup should the market decide to turn around.
*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.
There is substantial risk of loss in trading futures and options.
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
We expect the action in many markets in January to set the tone for the remainder of the year. The 50 day MA has supported March Crude the last two days just above $89/barrel. As we said yesterday we would start scaling into longs willing to stay with the trade and add from both higher and lower levels. The downside risk we see is $3/4 with twice the upside potential. Natural gas prices have gained now five out of the last six weeks putting on 4.6% this week. Trail stops on futures as a trade north of $5 is possible on this leg. We're still waiting for a settlement below the 20 day MA in the S&P at 1270 before we believe the recent action is anything more then just routine profit taking.
The dollar broke down today completing a 61.8% Fibonacci retracement of the move higher from early November. We see limited downside in the immediate future. To play a dollar bounce from here we suggest fading rallies in the Loonie and Pound. Live cattle broke the 20 day MA in February contract today, look for selling to intensify into next week. We're suggesting getting long April contracts from lower levels...stay tuned. Silver has experienced a near 15% correction just from the first of the year but we feel that is enough to get longs interested once again. Clients have been advised to start working long in silver again and also to initiate a 3/2 silver gold ratio trade mentioned in previous weeks. Gold closed below the 100 day MA today for the second day in a row, we see the next support level at $1325.
Wheat was the front runner in Ag this week out performing soybeans and corn. We will be looking to gain long exposure next week in some form with clients...stay tuned. Another 1-2% higher in cocoa next week and we would be looking for the exit door. Sugar picked up 3.25% today closing back over the 20 day MA. Traders must respect the trend line that has held since early August. Another limit move higher in cotton as we may see new record highs next week. What amazes me is that even in the face of rising prices exports aren't letting up.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
Crude oil futures for March delivery on the New York Mercantile Exchange on Thursday dropped sharply and hit a fresh two-week low of $89.60 a barrel as of this writing. Prices also have fallen below psychological support at $90.00 a barrel. Price action in crude oil futures the past three weeks has been choppy and sideways at higher levels and it now appears the market bulls became exhausted at those higher price levels. The strong downside price action in March crude oil futures on Thursday raises the specter of a bearish double-top reversal pattern forming on the daily bar chart, with the twin peaks being the January 3 high of $93.44 and the January 12 high of $93.46. A drop in March futures prices below solid technical support at the January low of $88.45 would confirm the bearish double-top reversal pattern on the daily chart and would also produce fresh near-term technical damage to begin to suggest that a near-term market top is in place. Stay tuned!--Jim Wyckoff
Have stocks and commodities traded high enough to take some money off the table? A close below the 50 day MA today likely means lower ground; that level is $91.55 in March. No claim to a crystal ball but my assumption is we will see a trade to $88/89 in the coming weeks. An upside break out in natural gas today means longs could re-enter the markets with stops below the recent lows. We should be issuing some option trade recommendations in the coming sessions. Today the indices lost 1-3% but until we break the 20 day MA's the bulls retain control. We suggested for some of the further out of the money Marches put spread holders to buy back their bottom legs today. A close below 1265 in the S&P leads me to believe 1225 could be in play...trade accordingly.
Our favored play in the currency sector remains bearish exposure in the Loonie and Cable. Our targets are .9850 and 1.5700 respectively. Traders should be trading the March contracts either futures or options; today we suggested purchasing .9900 puts in the CAD. We are operating under the influence that we will get an additional 2-3% retracement in lean hogs and live cattle in the short run. Gold ands silver made new highs but neither metal was able to hold onto their gains. We suspect a probe higher but would suggest trailing stops being today's action was far from strong. March silver will need to overtake $29.75 and February gold $1385 very soon too see higher ground. If this does not happen almost immediately we will get a correction first...only my opinion.
I have said this many times in the past follow oats and the other grains will follow...a near 3% loser today. Corn was lower by 2.77% while soybeans were marginally lower. As we voiced yesterday expect a correction in the short run in both these markets. Those willing to stay with a trade for several weeks could consider buying December 11′ corn and selling March 11′. Cocoa advanced to a six week high and on a trade above 3150 we could be off to the races...remain long. Coffee closed below the 20 day MA for the first time in 2011, our suggestion is to sell rallies. We've started to track options for the month of May...stay tuned.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
Gold Closes $23.20 Lower...($23.20) And Settled At $1360 For The Week. Another rate hike from China kept the selling pressure on the precious metals markets as many traders had predicted in the wake of rate hikes from Thailand and South Korea. This week the Gold and Silver markets could not extend early momentum due to the overwhelming rumors of rate hikes that eventually became factual. Despite these rate hikes we are still trading around the $1360.00 level as of this post. These levels may offer bargain hunters the opportunity to re-enter the market. We learned today that Greece's Bond rating has been lowered to "JUNK" status....
This report is obviously not a good indicator for the European Union. This week had one simple theme "FEAR OF INFLATION".....this was the reasoning behind all the rate hikes from the Central Banks.....Historically Gold and Silver retain their value better than most commodities during times of crisis....High inflation is normally "BULLISH" precious metals....However, anytime Central Banks raise rates it is normally "Bearish precious metals". This indicates to me that the Globe is very concerned about the state of Euro region as well as the U.S "Quantitative Easing 2" policy...Anytime you print more money...it is worth less.... And since the worlds commodities Gold, Silver, and the Energies are based off the U.S Dollar it Is apparent the world wants a strong U.S. Dollar.
THIS WEEKS HIGHLITES.............
Weekly Jobless Claims reported that first time applicants for unemployment benefits was 445,000...This was expected to be 410,000. FOMC Chairman Ben Bernanke while attending a panel concerning small business stated that the FED see's the economy strengthening however, the unemployment isn't falling at a pace the FED would like. There also is NO doubt the globe is concerned about world-wide INFLATION.
*South Korean's Central Bank raised rates by .25 basis points....this was done as an anti-inflation measure..The BOK has hinted that they will raise rates .25 basis points every quarter to curb their high inflation......
*Thailand's Central bank raised for the fourth time in six months the bank raised their rate .25 basis points "in light of rising inflation"....
*There are indications that the Central Bank of India is about raise their rates.....
*There are also indications that Poland's Central Bank will raise rates soon. Poland's inflation rate has reached a 11 month high
*the 10 member Board of the Central Bank of Chile are split in their consideration of a rate hike......
*EXPECT OTHER NATIONS TO FOLLOW SUIT.........
Despite all these Central banks raising rates.....Gold remains resilient...so far Gold covered a $ 38.30 RANGE this week.....
MY SWING NUMBERS 1/18
February Gold
RESISTANCE # 2.........................$1387.00
RESISTANCE # 1.........................$1373.00
PIVOT ........................................$1364.00
SUPPORT # 1.............................$1350.00
SUPPORT # 2.............................$1341.00
March Silver
RESISTANCE # 2........................$29.32
RESISTANCE # 1........................$28.82
PIVOT........................................$28.46
SUPPORT # 1............................$27.96
SUPPORT # 2............................$27.60
Mike Daly / Gold Specialist
PFG BEST mdaly@pfgbest.com
877-294-4669
312-563-8029
According to a loosely-organized apocalyptic Christian movement, May 21, 2011 will be the "end of days." On or about that same date, the price of oil in the United States will begin to climb to $4 a gallon, according to two savants of the oil industry. The former is highly unlikely but the latter is very probable.
The escalation in the price of oil is predicted by the legendary oil man T. Boone Pickens, known for his financial acuity as well as his oil expertise, and John Hofmeister, who retired as president of Shell Oil Company, to sound the alarm about the rate of U.S. consumption of oil.
In an interview with a trade publication, Hofmeister predicted that oil would rise to $4 a gallon this year and to $5 a gallon in the election year 2012. Separately, Pickens-who has been leaning on Congress to enact an energy policy that would switch large trucks and other commercial vehicles from imported oil to domestic natural gas-predicts that oil currently selling for just over $90 a barrel will go to $120 a barrel, with a concomitant price per gallon of $4 or more.
The Obama administration appears to have been slow to grasp the political implications of an escalation in the price of oil. When asked about it, outgoing White House Press SecretaryRobert Gibbs referred the questioner to the Department of Energy.
Not everyone is alarmed by the incipient rise in the oil price. Republicans, who are especially close to the oil industry and its Washington lobby, orchestrated by the American Petroleum Institute, think that a great deal of hay can be made while this particular sun shines. They plan to attack the administration for spending too many resources on alternative fuels, over-regulating the industry, and keeping too many federal lands away from oil prospecting. They also accuse the administration of being too frugal with its release of drilling areas in the Gulf of Mexico and on the two coasts, as well as Alaska.
The Republicans have unlikely bedfellows in their quest to politicize the price of oil. They are joined by environmentalists who have long believed that only high prices will break America's passion for the automobile.
Environmentalists have long advocated European-style taxation to drive motorists out of their cars and onto buses and trains.
A third interest group that will take some pleasure in rising oil prices are those who are invested in alternatives such as ethanol, oil from algae and electric vehicles.
Meanwhile, the International Monetary Fund is keeping an eye on the price of oil, according to Caroline Atkinson, director of external relations at the IMF. She told a Washington press briefing that the IMF is particularly concerned with food and other commodities that are directly affected by the price of oil.
Hofmeister, who now heads the non-profit Citizens for Affordable Energy that advocates energy development in all forms, believes that the United States could increase oil production from the current 7 million barrels per day to 10 million, half of its consumption. He told an interviewer from Platt's, an energy publisher and broadcaster, that we were "essentially frittering at the edges of renewable energy, stifling production in hydrocarbon energy," which he said could lead to blackouts, brownouts, gas lines and rationing.
There are already signs that the Republican-controlled House of Representatives is planning a big push for hydrocarbon energy. An indication of this comes from Rep. Fred Upton, R-Mich., a one-time global-warming believer who has dropped that issue from his agenda. He is the new chairman of the House Energy and Commerce Committee.
In periods of high gasoline prices in the past, presidents have found there is very little that they can do. Their options are to reduce the tax on gasoline, sell oil from the Strategic Petroleum Reserve or the Naval Petroleum Reserve. President George W. Bush went a step further: He went to Saudi Arabia twice to ask the Saudis to increase their rate of production. Twice he came back empty-handed.
All of this would be good news for the oil producers and especially those troublesome players, Russia and Venezuela. Of course, if you believe the human endeavor ends on May 21, better fuel the SUV and hit the road.
Source: Oilprice.com By. Llewellyn King for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com
Investors traders alike need to recognize it is not always about the number in the report but rather the markets reaction. Crude continues to move higher advancing .070% as of this post though I would have expected more upside today with the weakness in the dollar. Move support now up to the 20 day MA at $90.10 in February. On a new contract high trade above $92.60 our suggestion is move stops up to $91.50. On a set back we will be advising clients to buy futures and sell out of the money calls likely looking at May or June contracts. Natural gas has gained for the last four sessions. As long as $4.30 holds in February we're suggesting long exposure. We like the idea of 50 cent call spreads in April contracts. No more short entries in the indices as all our clients bear put spreads are now under water. On a trade back near the 20 day MA if given the opportunity we will likely be cutting their losses.
The dollar is back below the 20 day MA having lost 1.7% in the last three sessions. We feel an interim top is in and expect a trade back near 78.00 in the coming weeks. Forex traders are advised to buy set backs in the Euro, Pound or Swissie. A trade back to .9900 in the Loonie should get clients close to break-even on their March put options. Fresh contract highs today again for lean hogs and live cattle and we think there is more to come. Buy dips in April contracts expecting 3-5% further appreciation. Two sided trade in metals today; our suggestion remains long (3) silver against (2) short gold; the idea is to make more money in silver than you lose in gold.
A bullish USDA report aided in a 3.95% appreciation in corn, 4.25% in soybeans and 1.45% in wheat. We may see some back and fill action in the coming sessions but based on supply and demand constraints we feel both corn and soybeans will need to trade higher to ration demand and to find more acreage. Those long into the report were advised to take partial profits today in their corn and soybeans. In the last four days we think cocoa has moved about 50% of the total move we're anticipating, that being said we have a target about $150 from the current pricing. Bearish engulfing candle in sugar today but we've yet to commit any client capital...stay tuned. Coffee closed higher by 2.51% today briefly trading to new contract highs but we think prices are too rich at these levels so stand aside.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
February lean hog futures prices on Monday hit a fresh nearly four-month high of $80.50 per hundredweight as the hog market bulls have regained fresh upside near-term technical momentum. Futures prices are in a choppy, nine-week-old uptrend on the daily bar chart. The next upside price objective for the rejuvenated hog market bulls is producing a close in February futures above strong chart resistance at the contract high of $81.35, scored in September of last year. On the downside, the bears would gain fresh near-term technical strength by pushing and closing February futures prices below strong chart support at last week's low of $77.25. Near-term technical resistance for February hogs is located at $80.00, at Tuesday's high of $80.35, at this week's high of $80.50 and then at $81.00. Near-term chart support is seen at $79.50, at $79.00, at $78.65, at $78.40 and then at $78.00. Stay tuned!--Jim Wyckoff
Commodity bulls have not missed a beat as 2011 appears to starting the same way 2010 concluded. Bullish fundamental noise over the weekend starts this week off on the upside in Crude oil. As long as $88 holds the next few days in the February contract we suggest scaling back into longs. Our trade suggestion to aggressive clients has been to get long futures while selling out of the money calls against the futures 1:1. A 7% retracement in natural gas in the last week is enough to put longs back on our radar but we've yet to initiate positions for clients...stay tuned.
I smell a correction in the indices but before getting heavily short wait for the 20 day MA's to give way; at 11510 in the Dow and 1250 in the S&P. Currently some of our clients hold March ES put spreads and will look to add if and when a correction begins. Though there may be a touch more upside we expect 82.00 to act as solid resistance in the dollar. If short the Euro or Swissie trail stops as we feel most of the downside has taken place. Our clients only open position in the currency complex is March puts in the Loonie with a target of .9800 in the coming weeks.
Buy dips in lean hogs and live cattle and trail stops. We advised clients to start scaling back into silver today and will remain long as long as the 50 day MA at $28.15 holds on a closing basis. An alternative would be to buy (3) silver futures against the sale of (2) gold futures. 30-yr bonds and 10-yr notes are both back above their 20 day MA's; aggressive traders can get long with stops below the recent lows. The charts are not saying buy but we suggest lightly scaling into longs ahead of Wednesday's USDA report in both new crop corn and soybeans. Buy May cocoa at this level as prices have wandered to the bottom of the recent range, a return to the upper end of the channel would mean just over a 5% appreciation. As long as the 20 day MA caps rallies in cotton we would suggest remaining in bearish positions; that level is $1.46 in March.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
The first week of 2011 produced a very choppy and volatile $71.70 range as traders and investors tried to decipher this week's economic data. I believe this trend will continue as traders will be forced to take profits as the gold and Silver markets continue to trade in overbought territory. However, there is very little that has changed in regards to the world-wide economy. It is my belief that savvier investors continue to lack confidence in the fiat currencies and in my opinion will still choose Gold and Silver as safe haven to protect their wealth. It will be very interesting to see if the Asian sector will see this recent price dip as another opportunity to buy Gold at a "bargain price"
Despite some good unemployment data this week it is certainly apparent that the United States still has a long way to go on our way to recovery. The two biggest drags on the U.S economy are HIGH unemployment and a depressed housing sector. And FOMC Bren Bernanke echoed those sentiments today as he testified in front of The Senate Budget Panel.....(Newswire headlines from Bernanke's testimony)... *Bernanke said it may take 4-5 years for jobs market to normalize.... *2011 recovery likely to be moderately stronger....... *Persistent high unemployment could threaten recovery..... *housing sector remains depressed..... *Failing to curb deficits could lead to higher rates.
RESISTANCE # 2....$1395.00 RESISTANCE # 1....$1385.00 PIVOT....$1369.00
SUPPORT # 1...$1355.00 SUPPORT # 2....$1343.00
MARCH SILVER
RESISTANCE # 2....$29.84 RESISTANCE # 1....$29.26 PIVOT....$28.79
SUPPORT # 1....$28.21 SUPPORT # 2....$27.75
(GLOBEX FEBRUARY GOLD VOLUME 209,000 Friday 1/7)
Mike Daly / Gold Specialist
PFG BEST
mdaly@pfgbest.com
312-563-8029
877-294-4669
There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
March soybean futures at the Chicago Board of Trade have backed off from Monday's contract and two-year high of $14.09 a bushel. Profit-taking has been featured and no serious chart damage has yet been inflicted. However, the soybean bulls have faded a bit and there are some worrisome early technical clues that have developed this week. Price action on Monday and Tuesday produced and confirmed a bearish "key reversal down" on the daily bar chart for March soybean futures. Prices Monday hit a fresh contract high and then promptly backed off to close lower, near the session low and score a bearish "outside day" down on the daily chart. An outside day down occurs when a trading session's high is higher and low is lower than the previous session's trading range, with a lower close.
A key reversal down occurs when a market makes a fresh for-the-move high and then backs off to score an outside day down, with follow-through selling pressure the next trading session to confirm it. The Moving Average Convergence Divergence technical indicator overlaid on the daily bar chart for March soybean futures is just now producing a bearish line crossover signal, whereby the MACD line crosses below the "trigger" line of the indicator. Importantly, however, near-term and longer-term price uptrends on the charts are still firmly in place, which at present suggests the present price downturn in March soybeans is just a significant correction in an overall price uptrend. The soybean market bulls would regain some fresh upside near-term technical momentum by pushing and closing prices back above strong overhead technical resistance at this week's contract high of $14.09. The bean market bears would gain better downside near-term technical momentum by producing a close below psychological support at $13.00 a bushel. Stay tuned! Jim Wyckoff
We view the current sell off in a number of commodities as merely a correction not an end to the decade old bull market. The chart was ugly but I did think we would see $94/95 in Crude before this correction...I stand corrected. The fact that we closed below the 20 day MA we should see a probe at the 50 day MA; in February at $87.20. The trend line that has held for several months comes in at $85 so at worst we could see an additional $4-5 from today's close...only my opinion.
We will likely be looking at scaling into longs in March and April contracts on a trade $3 lower from here. On a 25-30 cent pullback in natural gas we would once again look at scaling into futures and purchasing 50 cent call spreads for clients. A sell off in early dealings was erased as the indices are slightly positive as of this post. We have positioned our more aggressive clients in bearish option positions in the ES thinking we are overdue for a correction; target in March futures is 1215-1225.
We hinted at a few plays in forex yesterday (shorts in the Yen, Swissie and Loonie) which were all hit today. Much of the move came overnight especially in the Swissie so we opted to get short the Loonie. Some clients purchased put options with a target of .9800. Lean hogs and live cattle should continue trading lower. We welcome a break of the 20 day MA's in coming sessions. About 1.5-2.0% lower in live cattle and we would look for an exit door on shorts. At a crossroads as tomorrow action will be critical in both gold and silver. Gold was hit 3% today closing at the 50 day MA. We expect there to be more downside, next target $1335. Silver lost 4.13% and was down over 5% intra-day. The low of the day tested the trend line that has held for six months. On a breach of that line look out below as we could see 5-8% further depreciation...trade accordingly.
Sugar and coffee may have reached an interim top; we may have bearish trade suggestions...stay tuned. We will be using this setback in cocoa to be a buyer of May contracts for clients; we have both options and futures suggestions. Inquire for more detail. Day two for the correction grains, as suggested yesterday we would like to see more of a set back in new crop corn and soybeans to be a buyer ahead of the January 12th USDA report.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
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