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Daily Newsletter, Tuesday, 09/09/2003

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The Option Investor Newsletter                 Tuesday 09-09-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Trend Change?
Futures Markets: Equities Miss the Party
Index Trader Wrap: See Note
Market Sentiment: Chalk It Up


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      09-09-2003           High     Low     Volume Advance/Decline
DJIA     9507.20 - 79.10  9584.95  9490.84 1.77 bln   1234/1958
NASDAQ   1873.43 - 15.20  1886.27  1867.81 2.29 bln   1363/1835
S&P 100   513.92 -  4.10   518.02   512.95   Totals   2597/3793
S&P 500  1023.17 -  8.47  1031.64  1021.14
W5000    9932.85 - 77.70  9991.02  9914.10
RUS 2000  513.57 -  3.56   517.13   512.51
DJ TRANS 2732.19 - 29.50  2767.01  2730.80
VIX        19.68 +  0.89    20.02    19.20
VXN        30.38 +  0.83    31.26    29.91
Total Volume 4,383M
Total UpVol  1,495M
Total DnVol  2,838M
52wk Highs  659
52wk Lows    10
TRIN       1.63
NAZTRIN    0.87
PUT/CALL   0.82
************************************************************

Trend Change?

Markets are down two out of three days but we are far from a
new bear market. Despite the selling and the change in internals
we are still stuck in the trading range we have seen for the
last week. The major difference was in the internals which
could be a leading indicator of future direction. As we creep
quietly deeper into September traders are looking for any clue
as to when the historical trends may appear.

Dow Chart



Nasdaq Chart




Economically this was not a good day. Not bad, but not good
either. The Wholesale Trade report was slightly below consensus
at +0.4% but down from last month at +1.6%. Inventories remained
unchanged for the second month but the inventory-to-sales ratio
returned to its record low of 1.52. This would tend to show
pessimism that the recovery may not hold because nobody is
stocking up for future sales. This is a mixed message because
historically very low inventory numbers would spark a huge spike
in manufacturing if demand suddenly increased. Without a recovery
in sales that manufacturing bounce will not occur. The drop in
sales from +1.6% in June to only +0.4% in July would be more
troubling were it not for the many corporate references to a
pickup in business in July. Did it really pickup or was it just
a temporary post SARS bounce? We will have to wait for the August
data to see for sure.

The Richmond Fed Manufacturing Survey rose to zero in August
from -7 in July. While this was overall positive it was only
barely so. The biggest gain was in the New Orders, which became
less negative at -4, up from -13. The Backlog of Orders dropped
from -17 to -20 but the six month outlook rose to 31 from 28.
Smaller backlogs, order flow still negative but getting better
with the outlook still improving. This was disappointing when
measured by the ISM gains and all the components were below
their June values. This only reflects the manufacturing in the
Richmond area but it is not in agreement with the ISM. It could
be a sign that the ISM is in trouble for August.

Chain Store Sales continued to rise at +0.5% as back to school
sales were still ringing the registers. This was the largest
gain in five weeks but now that the Labor Day shopping weekend
has passed we could see some weakness ahead. The BOT-M lowered
estimates for September to a +3.5% gain from +4.0% after WMT,
S and TGT lowered estimates for September. Tax rebate checks
have slowed and mortgage refinancing has dropped more than
-80%. This will reduce the flow of spending cash until the
year end holiday season begins. We will get another look at
the REFI index tomorrow with the Mortgage Application Survey.
The REFI index has dropped to 1981 from the May high of 9977
and loans started in May/June would have already closed by
now. Only 30 days ago the index was 4145 and we have seen a
50% haircut since then. Goldman lowered its outlook on retail
stocks saying the leading consumer indicators were slowing
and retail stocks were trading above their five year average.
Goldman downgraded most retail sectors to cautious from
neutral except for supermarkets and drug stores which they
left at neutral. They cut HD, LOW, FD and MAY to inline.
Part of the downgrade on HD and LOW was due to mortgage rates
and the impending deceleration in housing turns. Merrill
jumped on the valuation downgrade wagon with a SELL on
Albertsons.

Nokia depressed the market at the open after the CFO said that
phone prices were falling. NOK still said earnings would come
in at the high end of expectations but the falling prices
comment touched quite a few players. Falling prices puts
pressure on chip and component makers as well as profitability
of other phone makers like QCOM, ERICY and MOT and service
sellers like Verizon and AT&T. Increasing competition was
given as the reason by Nokia. Falling prices can mean lack
of general demand and the sector ripples were light but broad.

DB upgraded CSCO before the bell but it closed in negative
territory despite a valiant try to hold the higher ground.
The networking index fell -2.2% with CMVT and LU losing -6%
while FDRY bucked the trend at +4.1%. 12 of the 15 stocks
declined. 11 of 13 stocks in the communication index fell as
well. Most of this weakness was attributed to the Nokia news
but there was also fall out in the communication sector on
news that WCOM had reached agreement to come out of bankruptcy
leaner and meaner. This is frustrating for other companies
who were hoping the company would be liquidated to cut down
on competitors.

After the close today XLNX and TXN issued mid quarter updates
and the outlook was not as positive as traders had hoped.
XLNX said sales of its programmable chips would be flat to
only slightly higher and inline with prior guidance. XLNX
fell in after hours trading. TXN refined its guidance to the
high end of its prior levels. TXN had said revenue would be
in the $2.29 to $2.49 billion range and they narrowed that
range to $2.39 to $2.49 billion. Earnings were expected to be
in the 20-22 cent range, up from the 18-23 prior guidance.
TXN fell -1.60 in after hours as traders were expecting the
new guidance to be outside the prior range.

USB began the worry over tech valuations with comments that
the current prices reflected a PE of 31 based on NEXT years
earnings and those earnings were still questionable. They
said the historical PE for this time in the cycle was 28.
Salomon however raised chips yesterday based on an acceleration
of earnings anticipated for 2004. It is all in the timing as
one man's over bought could easily be another's breakout.

The NOK warning this morning was only one of a the few
warnings we have had so far this quarter. According to First
Call only 20% of the pre announcements have been negative
compared to a normal 25% average. This should mean the 3Q
earnings are going to be better than expected but then WHAT
is actually expected? The market appears to be expecting a
blowout quarter after Intel guided up twice. Unfortunately
if you examine the earnings of the S&P companies the numbers
do not add up. For the 3Q the S&P earnings are expected to
jump +12% but revenue is only expected to rise +1.2%. The
4Q earnings are expected to rise +20% but revenue is only
expected to rise +2.3%. Obviously the earnings ramp is huge
and any slowing of revenue growth could be dangerous. The
earnings are predicated on drastically reduced costs and
higher productivity. (fewer workers) Everything is priced
to perfection and any cracks in that perfection model could
get ugly.

The current market has risen +2200 Dow points since the March
lows. The Nasdaq has risen +650 points. In 1998 and the start
of the great bubble the Dow only rose +1920 points, +25% from
the lows. In 1999 the Dow gained +2400 points, or +27%. The
current Dow has rallied +29% from the March lows. This is more
than either of the bull market bubble years and has done so
without any material pullback. In 1998, admittedly a strong
bull market the Dow lost -1966 points from the July high to the
October lows but recovered all of it to close the year higher.
In 1999, another strong bull market, the Dow dropped -1389
points from the August high to the October lows and recovered
all of it to close the year higher. What is driving professional
traders crazy is the total lack of selling this year after a
+29% gain in the Dow and a +51% gain in the Nasdaq in only
six months.

What is different this time? The early 1998 Dow low was 7450
and only 34 points higher than our low in March. The market
levels are basically the same. Where are the bears? Where are
the profit takers? Where is the normal September weakness from
portfolio rebalancing? The bullishness is so rampant there
are simply no sellers. While this is not a healthy trend it
can be self perpetuating. The main difference between our
current conditions and 1998/1999 is the Internet explosion
and the Y2K build out. PCs were flying off dealers shelves
at an average price of about $2500 to beat the Y2K bug and
allow buyers to surf the net with amazing speed on their
new 56K modems. One hundred million PCs were sold. Quite a
tech wave for those new surfers. The difference this time
around is that we do not have a wave. Investors are buying
techs like there is no tomorrow but the wave powering earnings
is more of a ripple. Certainly nothing you could surf. Computers
cost $750 now fully equipped but the dot.com surplus is still
with us. I threw away two dozen 1999 computers last month
because I could not sell them. The 450mhz Y2K computers were
scrap compared to what you can buy today for $399 new.

My only point tonight is this. We have had a huge move in
the last six months without any serious profit taking. Over
$3 trillion in gains have been made in the Wilshire-5000
since March without any serious pullback.  We are moving
into the most dangerous six week period on the calendar and
nobody appears worried. The 15 EMA on the VIX touched 20
today after the VIX closed under 19.0 last night. The last
time this happened was Sept-5th 2000 and EXACTLY at the Dow
high before the -1745 drop over the next six weeks to the
October 18th low. The last time before that was July-20, 1998
and EXACTLY the Dow high before dropping -1900 points to the
Oct-8th low. You can choose to ignore the VIX if you want
and you can believe we are going to hit 10,000 before 9,000.
What we believe is immaterial. The market will continue to
move based on what the herd decides to do not what the various
indicators and historical calendar trends say it should do.
The market exists for many as the great humiliator and any
of us who put our thoughts in print on a daily basis have
been the object of that humiliation many times over. All we
can do is point out what COULD happen and then get out of the
way. An informed trader is a better trader.

The buying in the futures markets today was unbelievable. The
numbers of contracts coming in at bid on every minute dip
were several times the number we have seen over the last week.
The dip buying was simply amazing but the market finished
down. Is this a change in the trend? The most telling news
for me was the Nasdaq volume at 2.2 billion shares. This was
the second highest volume since May. Down volume beat up
volume but only slightly at 6:5. 52-week highs at 369 beat
lows at 1. Yes, one. The NYSE on the other hand had nearly
2 billion shares but the down volume was 3:1 over up volume.
52-week highs 204, lows 5. Despite the increase in down
volume the internals were still very bullish on both exchanges.
It was disguised because the indexes fell but it was still
bullish. At least that is what it appears on the surface.
Many would point to the massive volume over the last five
days, over 4 billion shares across all markets each day, and
the lack of upward movement and suggest there was serious
distribution underway at the top. Selling is very heavy but
so is the buying in order to hold these levels and somebody
is going to be wrong.

What direction you believe in will not change with this article.
That is fine I am not trying to tell anyone that we are going
up or down. I am only trying to alert you to the possibilities.
Nothing is ever guaranteed. In 1995 and 96 there was no October
dip. In 1994 it was so small as to be insignificant to the
overall picture. In 1997 and the beginning of the Internet
trading revolution it was only -1300 points. There is no right
answer to what lays ahead. If you are prepared there is also
no danger. Keep those stops tight and think about some index
puts for insurance. Remember the Boy Scout motto and "Be
Prepared".

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


***************
FUTURES MARKETS
***************

Equities Miss the Party
Jonathan Levinson

Treasuries advanced slightly, silver and gold rallied, the CRB
advanced, the dollar declined, and equities pulled back.  It was
a rare setup- equities actually went down.

Daily Pivots (generated with a pivot algorithm and unverified):





15 minute chart of the US Dollar Index




The US Dollar Index spent the day selling out of the range it had
held since Friday, finding support in the 96.30 area before
bouncing in the afternoon.  The move coincided with a large
bullish move in the precious metals, as well as a new 6 month
high on the broader CRB, again led by precious metals futures.


Daily chart of December gold




December gold gapped above the upper ascending wedge trendline
and never looked back, up 7.50 at 383.70 on GLOBEX as of this
writing.  The oscillator uptrends continue, with 376 now support
following yesterday’s inside day/ harami.  The precious metals
indices had very bullish days, with HUI breaking and holding
above 200, XAU breaking but failing to hold 95.  The HUI reached
a better than 6 year high on the move, with its alltime closing
high of 220 now within view.  HUI closed at 204.08, up 5.31, XAU
+1.17 to 94.53.  The CRB was up 1.04 to 244.38.


Daily chart of the ten year note yield




Treasuries found buyers today after seeing both sides of
unchanged, continuing yesterday’s choppy, uncertain trade.  The
ten year note yield (TNX) closed lower by 1.8 bps at 4.371%.
Note that the move completes the bearish trinity of a lower
dollar, higher commodity and precious metals prices, and higher
bonds.  The move in the TNX was far from decisive, as it failed
to take out yesterday’s low.  Nevertheless, the setup is there,
with the oscillators pointed south in a confirmed downtrend.

The remaining component is equities, which fell today.  However,
given the bullishness in bonds and metals and the weakness in the
dollar, I’m wondering whether this isn’t a setup for a resumption
of the spring rally, where hot dollars chased everything with an
offer.  While I don’t believe so, given the pullback in mortgage
and refi activity, as well as some large drains from the Fed last
week, it’s easier just to follow the charts:


Daily NQ candles




The NQ printed an overnight high of 1397 and closed nearly 30
points below it.  The overnight high touched the upper rising
trendline on the daily bear wedge we’ve been following.  Support
is right here at 1370 on the daily chart, and the Macd showed the
fist hint of topping today.  The trending stochastic remains
mute, but downside is clearly its preference from current levels.


30 minute 20 day chart of the NQ




Zooming in on the 30 minute candles, we see that fleeting break
of the lower rising trendline on the bear wedge, with a closing
price of 1372, too close to call.  The Macd is in a downphase,
while the twitchier stochastic is merely confused.  More
interestingly, the Macd shows a significant bearish divergence,
printing a pattern of descending highs even as the NQ was
printing higher highs.  The chart looks bearish here, but a
bounce from the current support level within the range would
successfully stop out a whole round of shorts if it made it to
the upper resistance line.  Note that anything but an upside
break of the upper rising trendline maintains the bearish
ascending wedge with its 1280 downside target.

Daily ES candles




We see the same setup on the ES, with the overnight high of 1035
touching the upper wedge resistance line, where the advanced
failed.  We have a bearish Macd divergence here as well.  That
said, while the longer term daily candle view looks ripe for a
downside correction, intraday price patterns displayed an uncanny
resilience, with a wall of bids behind every point-drop.  Whether
this signals a controlled decline or the presence of frothing
bulls, one can only wonder.  However, it remained a tricky day to
trade, with a number of the obligatory stop runs in both
directions.


20 day 30 minute chart of the ES




On the 30 minute ES chart, the technical damage done by today’s
decline is clearer.  The lower wedge support got broken on a
closing basis, as did this week’s rising trendline.  This latter
secondary line was repaired by the end-of-session tape painting
job, but whether it can hold remains to be seen.  There’s the
same Macd bearish divergence, and the same confused stochastic
with which to contend.  However, most of the longer cycles remain
overbought, as discussed in last night’s Index Wrap, and bears
and bulls can now both agree that 1035 is a top-heavy level.

Daily YM candles




We have the same picture on the YM, except that the damage on the
30 minute chart is more pronounced, with even the 300 minute
stochastic resolving the confusion noted on the ES and NQ to the
downside.

20 day 30 minute chart of the YM




The bottom line remains that equities did not participate in the
potentially bullish effects of today Dollar selloff.  I don’t
consider a declining dollar to be bullish, but all through the
spring it was.  The weakness in equities made the relative
strength in bonds, commodities and particularly precious metals
look all the more bearish- a flight to defensive positions or to
quality.  What remains to be seen is whether the bearish
formations on the equity charts play out from here, or whether
we’ll be treated to more rangebound Bass-o-matic action.

The prescription remains stops for bulls and caution for bears.
Bulls might want to tighten those stops.


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****************
MARKET SENTIMENT
****************

Chalk It Up
- J. Brown

A less than stellar mid-quarter update from Nokia and a round of
downgrades from Wall Street helped set the tone today.  Despite
the sour mood and declines across most major indices and sectors
the losses were not overwhelming.  Most commentators merely
chalked it up to long overdue profit taking.

I'm prone to agree with them.  The DJIA managed to stem its
losses and close above the 9500 level while the NASDAQ is still
trading above 1850; even the S&P 500 is still above 1020.  Does
that mean aggressive bears aren't speculating on further
declines?  No, it doesn't but there are still plenty of investors
willing to buy the dip.  The sterner mood set by Wall Street
analysts this week merely has buyers being more selective in
their choices.

I realize this is starting to sound stale but I would expect
weakness ahead of the 9/11 anniversary on Thursday, especially
given the strength of the markets in August and the first week of
September.  Who's to say the big spike in gold today wasn't a
little pre-9/11 ramp up by speculators?

I'll be impressed if the major indices can hold these levels and
just trade sideways the next couple of sessions.  In the
meantime, bullish traders should probably be waiting for that
next big intraday dip (and bounce) from their favorite equities
to trade.  Just be careful - the next round of valuation
downgrades could hit your pet stock next.


-----------------------------------------------------------------

Market Averages

DJIA ($INDU)

52-week High:  9609
52-week Low :  7197
Current     :  9507

Moving Averages:
(Simple)

 10-dma: 9474
 50-dma: 9252
200-dma: 8643



S&P 500 ($SPX)

52-week High: 1032
52-week Low :  768
Current     : 1021

Moving Averages:
(Simple)

 10-dma: 1015
 50-dma:  994
200-dma:  924



Nasdaq-100 ($NDX)

52-week High: 1387
52-week Low :  795
Current     : 1370

Moving Averages:
(Simple)

 10-dma: 1351
 50-dma: 1281
200-dma: 1126



-----------------------------------------------------------------


No change here.  As would be expected the volatility indices crept
higher on the market weakness.

CBOE Market Volatility Index (VIX) = 19.37 -0.52
Nasdaq Volatility Index (VXN)      = 30.70 -0.21

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume

Total          0.83        634,583       523,614
Equity Only    0.67        521,716       347,457
OEX            1.47         19,503        28,820
QQQ            3.97         16,692        66,222


-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          72.4    + 0     Bull Confirmed
NASDAQ-100    80.0    + 1     Bear Correction
Dow Indust.   86.7    + 0     Bull Confirmed
S&P 500       81.8    + 0     Bull Confirmed
S&P 100       89.0    + 0     Bull Confirmed


Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart.  Readings above 70 are considered overbought, and readings
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

-----------------------------------------------------------------

 5-Day Arms Index  1.15
10-Day Arms Index  0.95
21-Day Arms Index  0.94
55-Day Arms Index  1.05


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.

-----------------------------------------------------------------

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1014      1252
Decliners    1793      1819

New Highs     191       278
New Lows        6         4

Up Volume    408M      907M
Down Vol.   1315M     1281M

Total Vol.  1743M     2204M
M = millions


-----------------------------------------------------------------

Commitments Of Traders Report: 09/02/03

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

More of the same for commercial traders in the large S&P
futures contracts, but we do see a slight bump in short
positions.  There is barely any change between longs
and shorts for the small traders.


Commercials   Long      Short      Net     % Of OI
08/12/03      399,414   456,767   (57,353)   (6.7%)
08/19/03      404,665   455,381   (50,716)   (5.9%)
08/26/03      410,378   472,987   (62,609)   (7.1%)
09/02/03      417,973   482,392   (64,419)   (7.2%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   18,486  -  6/17/03

Small Traders Long      Short      Net     % of OI
08/12/03      158,821    71,040    87,781    38.2%
08/19/03      162,034    87,064    74,970    30.1%
08/26/03      170,424    76,967    93,457    37.8%
09/02/03      169,030    75,748    93,282    38.1%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

The bullish trend of growing long positions for the
commercials in the e-minis has continued.  The latest
report shows drop of 10K short positions and 9K new
long positions.  Locksteppening in the opposite direction
are the small traders with a big jump in short positions
to the most bearish we've seen them in a long time.


Commercials   Long      Short      Net     % Of OI
08/12/03      306,014   217,233     88,781    17.0%
08/19/03      296,971   235,779     61,192    11.5%
08/26/03      338,766   234,841    103,925    18.1%
09/02/03      347,724   224,011    123,713    21.6%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  123,713   - 09/02/03

Small Traders Long      Short      Net     % of OI
08/12/03       62,534   106,403   (43,869)  (26.0%)
08/19/03       90,428   125,980   (35,552)  (16.4%)
08/26/03       52,131   120,853   (68,722)  (39.3%)
09/02/03       56,709   134,094   (77,385)  (40.6%)

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Commercials caught part of the stampede fever and added
some long positions to their NDX futures.  Meanwhile
small traders rotated some money out of longs and into
shorts but no big change.


Commercials   Long      Short      Net     % of OI
08/12/03       34,374     53,015   (18,641) (21.3%)
08/19/03       32,107     53,665   (21,558) (25.1%)
08/26/03       33,991     55,849   (21,858) (24.3%)
09/02/03       37,002     55,379   (18,377) (19.9%)

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:   9,068   - 06/11/02

Small Traders  Long     Short      Net     % of OI
08/12/03       23,957     7,871    16,086    50.5%
08/19/03       25,607    10,134    15,473    43.3%
08/26/03       26,108     8,864    17,244    49.3%
09/02/03       23,168    10,561    12,607    37.4%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

No serious changes among the commercial traders while
small traders have grown fur and drastically reduced their
bullish positions.  The spike in shorts have them looking
for a INDU drop.


Commercials   Long      Short      Net     % of OI
08/12/03       24,942     9,878   15,064      43.3%
08/19/03       21,088    18,984    2,104       5.3%
08/26/03       24,586    10,386   14,200      40.6%
09/02/03       25,462    10,447   15,015      41.8%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
08/12/03        6,933    13,248   (6,315)   (31.3%)
08/19/03       15,717     9,143    6,574     26.4%
08/26/03       14,115     5,592    8,523     43.2%
09/02/03        6,629    13,402   (6,773)   (33.8%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   8,523  -  8/26/03

-----------------------------------------------------------------


------------------------------------------------------------
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The Option Investor Newsletter                  Tuesday 09-09-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: PCAR, SPW
Dropped Puts: None
Call Play Updates: AU, CCMP, ERTS, GILD, GS, MRVL, OMC, PGR, RYL, UTX
New Calls Plays: None
Put Play Updates: ANPI, ESRX, KKD
New Put Plays: EBAY, KSS


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

PACCAR - PCAR - close: 82.00 change: -2.34 stop: 82.45

Uh-oh... the recent profit taking has hit shares of PCAR.  The
stock slipped below our stop of $82.45 today and closed below
very short-term support.  The next stop appears to be $80.  We
were a little concerned after Friday's drop and the lower high
made late last week and suggested no new plays.  While we're
stopped out bullish traders can still keep PCAR on their watch
list.  A bounce from $80 or its simple 50-dma might be trade
worthy.  There is no new news to report.

Picked on August 31 at $85.37
Change since picked:    -3.37
Earnings Date        07/24/03 (confirmed)
Average Daily Volume:    1.15 million
Chart =


---

SPX Corp. - SPW - close: 49.55 change: -1.09 stop: 48.50

It's time to fold up shop on our SPW play.  We've enjoyed a
modest rise over the past few weeks, but the stock is just having
too much difficulty achieving a sustained breakout over the $50
level.  The stock came close to breaking under $49 on Tuesday and
if that level breaks tomorrow, odds seem good for a breakdown
below the (up until now) supportive 20-dma.  We'd prefer not to
stick around for that possible occurrence, so we're recommending
an exit at current levels.  There are stronger plays out there,
and that's where we need to focus our efforts.

Picked on August 17th at    $48.14
Change since picked:         +1.19
Earnings Date             10/27/03 (unconfirmed)
Average Daily Volume =       831 K
Chart =



PUTS:
*****

None


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********************
PLAY UPDATES - CALLS
********************

Anglogold Ltd. - AU - close: 39.78 change: +0.25 stop: 37.50*new*

Gold stocks have been outperforming the price of the yellow metal
lately, and gold (as measured by the December futures contract)
played a serious game of catch up on Tuesday, vaulting above the
$381 level for the first time since February.  In a role
reversal, gold stocks had a hard time holding onto their intraday
gains, with the XAU index closing at $94.53, nearly $2 off of its
intraday high.  That picture was repeated on our AU play, with
the stock gapping higher and trading up to $40.90 before selling
off throughout the day, ending with a paltry 25-cent gain.  That
action nearly filled in the opening gap, and it seems sure to
fill tomorrow.  A rebound from the $39.50 level can be used for
aggressive entries, while those looking for a better entry point
may be able to nab a rebound from the $38.50 area on a drop to
test that major level of support (former resistance) before
continuing higher.  Note that the 10-dma has now risen to $38.31
and it should help to reinforce that $38.50 support.  We're
raising our stop to $37.50 tonight, which is just under the 20-
dma ($37.67).  The 20-dma has not been broken in over a month.

Picked on September 2nd at  $39.51
Change since picked:         +0.27
Earnings Date             10/30/03 (unconfirmed)
Average Daily Volume =       832 K
Chart =


---

Cabot Microelect. - CCMP - cls: 65.13 chng: -1.57 stop: 64.50*new*

With the Semiconductor index (SOX.X) losing a bit of its lustre
on Tuesday, the same can be said about our CCMP play, only more
so.  On Friday and Monday, this Chip stock was looking strong and
like it was prepping for a serious breakout attempt.  After
failing to accomplish that goal, the bulls were sent packing on
Tuesday, with CCMP sliding back by 2.35%.  Of particular concern
is the fact that the stock ended right on major support at both
the bottom of the rising channel and the 20-dma ($65.06).  Both
of these measures of support have been instrumental in the
stock's rise over the past 2 months and if violated, we'll have a
very clear case of a broken trend.  Only very aggressive traders
should attempt new entries here with daily Stochastics clearly
pointing down, and only if both CCMP and the SOX can catch a
volume-backed rebound on Wednesday.  Otherwise, our tightened
stop at $64.50 is likely to be taken out and we'll be dropping
the play near break even.

Picked on August 27th at    $64.45
Change since picked:         +0.68
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =       781 K
Chart =


---

Electronic Arts - ERTS - close: 90.09 chg: -0.58 stop: 85.99*new*

The bulls took a break on Tuesday and a triple-stock down grade
in the software sector by Bank of America didn't help the GSO.X
software index or shares of ERTS.  Despite the weakness today,
shares of ERTS help up pretty well.  They bounced just above the
$89 level to close off the worst levels of the day.  The rising
trend is still intact and this might be an entry point for bulls
willing to step out on faith.  ERTS has not violated its simple
21-dma in weeks so more conservative traders might want to
consider snugging their stop loss just under the 21-dma near
$88.40.  We are going to bump our stop up a tad to $85.99.

Picked on August 28 at $89.06
Change since picked:    +1.03
Earnings Date        07/23/03 (confirmed)
Average Daily Volume:     3.3 million
Chart =



---

Gilead Sciences - GILD - cls: 68.75 chg: -0.62 stop: 64.25*new*

The strength in the BTK biotech index has been a blessing for
GILD.  While the stock may have under performed the big moves in
the index it has still been able to steadily climb higher.  We
are very close to hitting our initial target of $70.00 for GILD.
Short-term traders and more conservative traders can probably
start planning their exits.  The high today was $69.73 so
hopefully we'll see another push higher to actually crack the $70
mark.  This is actually a tough decision.  We strongly considered
just closing the play here near $69 or close it with a hard exit
at $70 but the oscillators on the stock still look very
promising.  One concern is that the BTK now looks extended and in
need of a small pull back.  We would not suggest new entries at
current levels. A breakout above $70 might be a tempting entry
for the momentum trader but we'd prefer a bounce from $65.  We're
going to raise our stop loss to $64.25 near the simple 50-dma.

Picked on August 19 at $65.32
Change since picked:    +3.43
Earnings Date        07/31/03 (confirmed)
Average Daily Volume:    3.31 million
Chart =


---

Goldman Sachs Grp. - GS - cls: 91.79 chng: +0.44 stop: 88.00*new*

While GS hasn't quite been able to bust a move through $92
resistance and hold it, the stock has been holding up fairly well
this week, thanks in large part to the Broker/Dealer index
(XBD.X) pushing back over the key $600 level on Tuesday.  GS has
been pinned between the $90 breakout level from last week and
major resistance at $92 for over a week now.  But it looks like
that range it about to break to the upside.  Buying intraday dips
into the $90-91 seems to be the best bet for new entries, but
remember not to catch a falling knife.  We want to buy the
rebound.  Momentum traders will need to wait for the clear
breakout over $92.25 (just over last Friday's intraday high)
accompanied by further strength from the XBD before playing.
Ratchet stops up to $88 tonight, which is just below the 20-dma
($88.60).

Picked on September 2nd at  $90.45
Change since picked:         +1.34
Earnings Date              9/24/03 (unconfirmed)
Average Daily Volume =    3.73 mln
Chart =


---

Marvell Tech. - MRVL - close: 41.52 change: -0.45 stop: 39.00

While it looked poised for a breakout move when we added it to
the call list on Friday, shares of MRVL seem to have lost their
will to rally this week, largely due to a lack of upside
catalysts for the overall Technology market.  Resistance in the
$42.50 area held and the stock has now pulled back to support in
the $41.00-41.50 area.  While it is nice to see the stock holding
support, one significant problem is today's break and close below
the 10-dma ($41.87), the first close below that average since
8/11.  That brings up the very real possibility of a drop back to
retest the $40 support level, where the 20-dma ($39.87) is
waiting to provide reinforcements.  A dip and rebound from that
level looks like a solid entry into the play, while momentum
types will need to wait for a decisive (read:volume) break above
$43.60 before playing.  Maintain stops at $39.

Picked on September 4th at  $42.53
Change since picked:         -1.01
Earnings Date             11/20/03 (unconfirmed)
Average Daily Volume =    3.18 mln
Chart =


---

Omnicom Group - OMC - close: 80.30 chg: -0.70 stop: 78.00*new*

The last five sessions for OMC have been very unusual.  After
hitting our short-term target of $80 the stock has traded
sideways in a very narrow range.  The good news is there has been
no profit taking in the stock and the longer it sits here above
$80 the more confident bulls might become in placing new bets.
Volume has naturally been light on these sessions so it doesn't
appear to be any kind of top or distribution of shares.  The
intraday chart actually shows a trend of higher lows.  We're a
little hesitant to suggest new plays at current levels,
especially with a stop at $75.75.  So we're going to raise our
stop to $78.00.  More conservative traders looking to initiate
new positions might even want to place a tighter stop just under
$79.50.

Picked on August 19 at $76.67
Change since picked:    +3.63
Earnings Date        07/29/03 (confirmed)
Average Daily Volume:     881 thousand
Chart =


---

Progressive Corp. - PGR - close: 73.06 change: -0.69 stop: 71.25

Into each rally, a little consolidation must sometimes fall and
that seems to be what is happening with our PGR play.  After
staging a very nice breakout over the $70 level, the bulls are
really having a challenge with the $73.50-74.00 area, right where
we expected they might.  That certainly confirms our initial
advice for conservative traders to harvest some gains in that
area.  Now we can look for a pullback into the $71.75-72.00 area
to provide a continuation entry on a rebound from that level.
Our $75-76 target still looks achievable.  The bulls are just
going to need to take a step back and get another running start
to accomplish that feat.  Maintain stops at $71.25 as a break
below that level would raise serious questions about whether the
breakout is failing.

Picked on August 27th at    $70.74
Change since picked:         +2.32
Earnings Date             10/15/03 (unconfirmed)
Average Daily Volume =       775 K
Chart =


---

The Ryland Group - RYL - cls: 70.97 chng: -1.23 stop: 67.50*new*

Watching shares of RYL trade over the past several sessions has
been like watching a tennis match with the limit lines set at
$72.50 and $70.40.  The bulls volley up to resistance and the
bears knock the stock back to support.  We're still expecting a
breakout to the upside, but it may take a bit more consolidation
before that can accomplish that feat.  Rebounds from above $70
can be used as an entry into the play, while momentum types will
want to wait for the stock to rally over $72.50 before playing.
The primary concern with RYL's bullish prospects stems from the
action in the $DJUSHB index, which failed to test Thursday's
highs on Monday and then it broke below Friday's lows today.  So
while it is encouraging to see RYL holding up better than the
overall sector, we need to be aware that the sector may weaken
enough to drag RYL down with it.  Key support for the $DJUSHB
looks like $440-445 and a break below there will likely spell
trouble for our play.  But as long as the sector holds above that
level, then the dips still look buyable.  Raise stops to $67.50,
which is right at the site of the 20-dma and just below the site
of last week's breakout.

Picked on September 4th at  $72.18
Change since picked:         -1.21
Earnings Date             10/21/03 (unconfirmed)
Average Daily Volume =       976 K


---

United Technologies - UTX - cls: 78.64 chg: -0.98 stop: 77.20

Dow component UTX has been trading closely in step with the DJIA
the last couple of sessions.  The bad news is the $INDU has been
down two out of the last three days.  Thus far shares of UTX have
been trading sideways between $77.20 and $80 (give or take) since
the 19th of August.  We could easily see another bounce from the
$77.50-78 level and more aggressive traders can use that as an
entry point but given the mood today it may be better to wait for
some additional upside momentum through the $80 mark before
laying down more cash.

Picked on August 29 at $80.05
Change since picked:    -1.41
Earnings Date        07/17/03 (confirmed)
Average Daily Volume:     2.1 million
Chart =



**************
NEW CALL PLAYS
**************

None


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*******************
PLAY UPDATES - PUTS
*******************

Angiotech Pharma - ANPI - cls: 40.27 chg: +1.61 stop: 41.01

Our stent story play between ANPI/BSX and JNJ is not working out
as we had hoped thus far.  Shares of ANPI did continue to fall on
Monday, as we had expected and the stock traded through our
trigger of $37.69, opening the play for us.  The weakness
continued until ANPI bounced from its 100-dma to close relatively
unchanged.  Meanwhile the headlines were coming out pretty fast.
But first a reminder, ANPI owns the rights to the drug on BSX's
drug-eluting stent that is set to compete with JNJ in the very
lucrative U.S. stent market.  BSX's stent is already out selling
JNJ's overseas so investors have bid up shares of BSX and ANPI
based on the expectation that the FDA will announce an approval
before the year is out.  The bad news is that JNJ has asked
federal court to stop BSX from developing their stent based on
patent infringement.  Now most analysts on Wall Street don't
really expect JNJ's request to have BSX stop development to come
through and the judge on the case is expected to rule on the
request for an injunction soon.  Meanwhile, BSX is getting some
bad publicity after the FDA sent them a warning letter over
sloppy research practices for its LP Stent.  The negative letter
is being seen as a slap on the wrist for BSX by Wall Street.
Both Merrill Lynch and J.P. Morgan analysts who cover the stock
don't see it as being material.  Meanwhile, shares of ANPI
continued their afternoon bounce today and closed back over the
$40 level.  This is not good news for the bears.  We would not
recommend new positions at current levels, especially with ANPI
pointing directly at our stop of $41.01.  Take note, next week is
the Transcatheter Cardiovascular Therapeutics meeting in
Washington, D.C., and BSX is set to release more data on their
latest U.S. study for its new Taxus drug-eluting stent that the
fight with JNJ is about.

Picked on September 8 at $37.69
Change since picked:     + 2.58
Earnings Date          08/12/03 (confirmed)
Average Daily Volume:       538 thousand
Chart =


---

Express Scripts - ESRX - cls: 57.96 chng: -1.08 stop: 61.00*new*

The gift that keeps on giving, our ESRX play seems like it can't
find enough buyers to plug the leak.  Each drop to new recent
lows is met by one day of attempting to hold support and then the
next day the bears overwhelm the buyers and break that transitory
support level.  On Friday, the stock came to rest just above the
200-dma and the bulls attempted a rebound from that level
yesterday.  That attempt was squashed by the close and the bears
got aggressive on Tuesday, driving the stock solidly under the
200-dma, closing out the session right on the low of the day.
We're getting ever closer to our $54 profit target and the focus
should now be turning to maximizing gains in the play.  We're
tightening our stop to $61 tonight, which is just above what
should be solid resistance now.  More conservative traders that
entered up near the $65 level may just want to harvest some gains
right here, rather than risk a bounce that actually sticks.  A
failed bounce below $60 may be used for aggressive traders still
interested in new entries, but beware that the stock is already
down roughly $7 in the past 5 days.  A drop into the $54-55 area
should be used as an unconditional exit from the play.

Picked on August 24th at   $63.48
Change since picked:        -5.52
Earnings Date            10/22/03 (unconfirmed)
Average Daily Volume =   1.41 mln
Chart =


---

Krispy Kreme Doughnut - KKD - cls: 40.96 chg: -0.53 stop:44.01

And that's the way the doughnut crumbles?  That just doesn't
sound right does it?  Investors have continued to spurn shares of
KKD as the stock has fallen through support between $42.00 and
41.70.  On Monday, while the broader markets were in rally mode,
shares of KKD slipped through our trigger point at $41.69 and
opened the play.  The weakness continued today and KKD closed
below the $41 mark for the first time since June 30th.  The stock
is quickly approaching what will be the first test of
psychological support at $40 but given the trend it may not hold.
However, if it does bounce then bears can look for another failed
rally under $42 as a new entry point.  Yet considering the lack
of performance we don't mind new plays at current levels either.

Picked on September 8 at $41.69
Change since picked:     - 0.73
Earnings Date          08/21/03 (confirmed)
Average Daily Volume:       1.0 million
Chart =



*************
NEW PUT PLAYS
*************

eBay, Inc. - EBAY - close: 50.87 change: -1.45 stop: 54.25

Company Description:
After developing a Web-based community in which buyers and
sellers are brought together in an efficient format, EBAY has
emerged as the dominant online auction site.  The eBay dynamic
pricing format permits sellers to list items for sale, buyers to
bid on items of interest and all eBay users to browse through
listed items.  Items listed on eBay include collectibles,
automobiles, art objects, jewelry, consumer electronics and a
host of practical and miscellaneous items.  Although based in the
United States, through its subsidiaries, EBAY also operates
trading platforms in Germany, the United Kingdom, Australia,
Japan, Canada, France, Austria, Italy and South Korea.

Why we like it:
EBAY was the poster child for the return of the Internet bubble
throughout most of the summer, especially in the days leading up
to its 2-for-1 split at the end of August.  Since the calendar
rolled over to September though, the bears seem to be gaining
greater traction in this one.  Last week, price broke below the
10-dma ($53.89), 20-dma ($53.80) and 50-dma ($54.25) and it did
so on stronger than average volume.  Not easily daunted, the
bulls tried to buy that breakdown, but apparently sentiment has
changed.  Instead of a successful rebound, EBAY found resistance
just below the confluence of those moving averages, and then
rolled over on Monday, with follow through on Tuesday brining the
stock down to the $50.50 area at its intraday low.  The $50 level
is key support (broken resistance on the way up) and if price
breaks below that level then it ought to trigger sell stops and
generate some decent follow through.  In fact, a breakdown under
$50, looks like it should traverse down to the next major support
at $45, which also happens to coincide with the 200-dma ($44.80).

We have no illusions about EBAY falling apart here, but the stock
does look ripe for some significant profit taking, especially if
we see the same from the broad market.  We're setting a $49.85
trigger (just below the early August intraday low) on the play.
Note that a trade at $50 would generate a Sell signal on the PnF
chart, its first since last October, along with a tentative
bearish target of $45.  Aggressive traders can enter on the
breakdown, while those with a more conservative approach may want
to wait for a subsequent rebound into the $50-51 area.  A
rollover near that level would confirm this area as new
resistance.  We're setting our initial stop at $54.25, currently
right at the 50-dma.

Suggested Options:
Aggressive short-term traders will want to focus on the September
50 Put, as it will provide the best return for a short-term play.
With September contracts expiring next week though, conservative
traders will want to utilize the October 50 contract, which
provides greater insulation from the spectre of time decay.

BUY PUT SEP-50 QXB-UJ OI=20739 at $1.05 SL=0.50
BUY PUT OCT-50 QXB-VJ OI=29022 at $2.60 SL=1.25
BUY PUT OCT-47 QXB-VR OI=16777 at $1.75 SL=0.75

Annotated Chart of EBAY:




Picked on September 9th at   $50.87
Change since picked:          +0.00
Earnings Date              10/23/03 (unconfirmed)
Average Daily Volume =     12.9 mln
Chart =


---

Kohl's Corp - KSS - close: 59.35 change: -2.15 stop: 62.25

Company Description:
Kohl's Corporation operates family-oriented, specialty department
stores, primarily in the Midwest.  The company's stores sell
moderately priced apparel, shoes, accessories and home products
targeted to middle-income customers shopping for their families
and homes.  Kohl's stores have fewer departments than full-line
department stores, but offer customers assortments of merchandise
displayed in complete selections of styles, colors and sizes.  Of
the 420 stores the company operates, 116 are takeover locations,
which have facilitated the entry into several new markets,
including Chicago, Illinois; Detroit, Michigan; Ohio; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region. (source: company press release)

Why We Like It:
Bulls might be a little surprised that Kohl's is showing up on
the put list.  KSS has been one of the retail sector's best
growth stories the last couple of years and should continue to
be.  As a matter of fact, Kohl's plans to open another 48 stores
in the month of October (and in time for the Q4 holiday season).
The company recently reported August sales and total sales were
up 15.8% while comparable store sales were up 3.2%.  That's not
quite the same pace that Wal-Mart is churning out but then they
don't have quite the same merchandise or business model.

The last few sessions have been hard on the Retail group as it
rolls over from yearly highs near 370.  Contributing to the
weakness has been a number of retail sector and stock specific
downgrades in just the last couple of days.  Many analysts feel
that the retailers have already priced in a very hefty second
half for 2003 and double-digit growth for 2004, hence it's time
to take profits.  Other analysts say there is still more upside,
especially with the economy churning strongly into the holiday
season.  Whatever your personal beliefs it's hard to ignore the
weakness.  KSS has dropped from overhead resistance near $66-65
to breakdown below what should have been decent support at $60.
The bearish breakout today was on strong volume of 5.1 million
shares.  The stock did pause at its simple 50-dma but looking at
KSS's performance on the intraday chart does not inspire any
confidence to buy it at this technical support level (50-dma).

The stock's weekly oscillators are all rolling over from
overbought and the daily indicators are thoroughly bearish.
There is potential support at the 200-dma near $56 but we think
it may not hold.  We're going to open the play at current levels
and use a stop at $62.25.  More conservative traders may want to
see KSS actually trade below its 50-dma first.


Suggested Options:
Short-term option traders will probably want to use the October
strikes.  There are January and April strikes available but we're
not looking that far ahead.

BUY PUT OCT 60 KSS-VL OI=1988 at $3.30 SL=1.65
BUY PUT OCT 55 KSS-VK OI=1996 at $1.25 SL=0.65

Annotated Chart:



Picked on September 9 at $59.35
Change since picked:     - 0.00
Earnings Date          08/14/03 (confirmed)
Average Daily Volume:       2.9 million
Chart =



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**********

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The Option Investor Newsletter                  Tuesday 09-09-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: KSS - Put


*********************
PLAY OF THE DAY - PUT
*********************

Kohl's Corp - KSS - close: 59.35 change: -2.15 stop: 62.25

Company Description:
Kohl's Corporation operates family-oriented, specialty department
stores, primarily in the Midwest.  The company's stores sell
moderately priced apparel, shoes, accessories and home products
targeted to middle-income customers shopping for their families
and homes.  Kohl's stores have fewer departments than full-line
department stores, but offer customers assortments of merchandise
displayed in complete selections of styles, colors and sizes.  Of
the 420 stores the company operates, 116 are takeover locations,
which have facilitated the entry into several new markets,
including Chicago, Illinois; Detroit, Michigan; Ohio; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region. (source: company press release)

Why We Like It:
Bulls might be a little surprised that Kohl's is showing up on
the put list.  KSS has been one of the retail sector's best
growth stories the last couple of years and should continue to
be.  As a matter of fact, Kohl's plans to open another 48 stores
in the month of October (and in time for the Q4 holiday season).
The company recently reported August sales and total sales were
up 15.8% while comparable store sales were up 3.2%.  That's not
quite the same pace that Wal-Mart is churning out but then they
don't have quite the same merchandise or business model.

The last few sessions have been hard on the Retail group as it
rolls over from yearly highs near 370.  Contributing to the
weakness has been a number of retail sector and stock specific
downgrades in just the last couple of days.  Many analysts feel
that the retailers have already priced in a very hefty second
half for 2003 and double-digit growth for 2004, hence it's time
to take profits.  Other analysts say there is still more upside,
especially with the economy churning strongly into the holiday
season.  Whatever your personal beliefs it's hard to ignore the
weakness.  KSS has dropped from overhead resistance near $66-65
to breakdown below what should have been decent support at $60.
The bearish breakout today was on strong volume of 5.1 million
shares.  The stock did pause at its simple 50-dma but looking at
KSS's performance on the intraday chart does not inspire any
confidence to buy it at this technical support level (50-dma).

The stock's weekly oscillators are all rolling over from
overbought and the daily indicators are thoroughly bearish.
There is potential support at the 200-dma near $56 but we think
it may not hold.  We're going to open the play at current levels
and use a stop at $62.25.  More conservative traders may want to
see KSS actually trade below its 50-dma first.


Suggested Options:
Short-term option traders will probably want to use the October
strikes.  There are January and April strikes available but we're
not looking that far ahead.

BUY PUT OCT 60 KSS-VL OI=1988 at $3.30 SL=1.65
BUY PUT OCT 55 KSS-VK OI=1996 at $1.25 SL=0.65

Annotated Chart:



Picked on September 9 at $59.35
Change since picked:     - 0.00
Earnings Date          08/14/03 (confirmed)
Average Daily Volume:       2.9 million
Chart =



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