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Daily Newsletter, Wednesday, 04/14/2004

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The Option Investor Newsletter                Wednesday 04-14-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Markets Turn Choppy
Futures Wrap: See Note
Index Trader Wrap: Perplexities of biblical proportions


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     04-14-2004            High     Low     Volume Advance/Decline
DJIA    10377.95 -  3.33 10415.28 10322.94 1.82 bln    680/2206
NASDAQ   2024.85 -  5.23  2040.15  2013.98 1.82 bln   1217/1903
S&P 100   551.88 -  0.36   553.69   548.72   Totals   1897/4109
S&P 500  1128.17 -  1.27  1132.52  1122.15
RUS 2000  582.02 -  3.81   588.01   578.88
DJ TRANS 2909.35 + 18.64  2923.95  2881.50
VIX        15.62 -  1.64    17.71    15.60
VXO        17.30 -  0.20    18.30    16.66
VXN        21.59 -  0.64    22.83    21.59
Total Volume 4,137M
Total UpVol  1,532M
Total DnVol  2,496M
52wk Highs     111
52wk Lows      233
TRIN          0.62
PUT/CALL      0.82
*******************************************************************

Markets Turn Choppy
by James Brown

U.S. stocks markets turned in a mixed session as investors
couldn't decide which to focus on: interest rate fears or
stronger corporate profits.  The CPI numbers this morning
confirmed that inflation is on the rise, which means the Fed will
likely act sooner rather than later.  Earnings continue to come
in strong despite a few high profile misses.  Meanwhile the U.S.
dollar spiked higher against the euro before fading but jumped
strongly against the yen.  This sent gold to a $7.20 loss closing
at $400.50 an ounce.  The inflationary CPI data extended the
flight from bonds.  Crude oil fell 49 cents to $36.72 a barrel
but that didn't stop retail gasoline prices from hitting yet
another all-time high.

Global markets were mostly lower.  The Japanese NIKKEI fell 29
points to 12,098 but the Chinese Hang Seng plummeted 361 points
to 12,669 on currency and interest rate concerns.  European
stocks didn't fare much better.  The English FTSE lost 30 points
to 4485.  The French CAC dropped 43 points to 3731 while the
German DAX fell 58 points to 4012.  U.S. indices ended the day
close to unchanged with minor losses but that hardly tells the
whole story.  U.S. stocks fell sharply at the open but within 10
to 15 minutes traders bought the dip and by lunchtime they were
at their highs for the session.  Unfortunately the afternoon
turned into a slow drift lower before a rebound in the last half
hour recouped most of the market's losses.

Market internals paint a much more bearish picture with declining
stocks whipping advancing issues 3-to-1 on the NYSE and 19 to 12
on the NASDAQ.  Down volume outnumbered up volume 2-to-1 on the
NYSE and 10 to 7 on the NASDAQ.  Overall volume was much improved
over Monday's anemic levels.  Oddly enough the volatility index,
a measure of investor fear, almost completely erased yesterday's
gains.  The same could not be said for the VXO and the VXN
volatility gauges.

Yesterday's decline was pretty discouraging as numerous indices
including the Dow Industrials and the S&P 500 broke their simple
50-dma's.  Adding to the negative technical picture are the
bearish MACD readings on all three major indices.  However, there
is hope that the recent weakness may just be a bull flag but that
could just be the optimist in me striving to come out.
Fortunately, the super strong earnings reports after the bell
tonight should do a lot to boost investor confidence and we may
see a continuation of this afternoon's rebound tomorrow.

Chart of the Dow Industrials:



Chart of the NASDAQ Composite:



Chart of the S&P 500 Index:



One might have expected Intel (INTC) to be the Dow's biggest
loser today given its disappointing earnings report last night
but shares of INTC were only down 30 cents and managed to hold
support at the $27.00 level.  Although bears should take heart in
noting the strong overhead resistance at its 40-dma and its MACD
is weakening and is about to turn into a sell signal.  The
biggest drag on the Dow happened to be McDonald's (MCD).  The
stock lost 4.49% and broke support at its 50-dma after announcing
strong same-store sales growth and raised their Q1 earnings
estimates to 40 cents, 3 cents better than analysts' estimates.
Yup, you read that right.  MCD traded down on good news.
Investors ignored the higher profit forecasts and focused on
same-store sales numbers that were hurt by a 2.9% drop in the
European comparable store sales even though U.S. same-store sales
jumped nearly 10% in March.

Keeping rate hike fears in the spotlight was the inflationary
Consumer Price Index (CPI) for March.  Economists were expecting
a jump of 0.3% but the Labor Department reported a rise of 0.5%.
Furthermore the core rate of inflation, minus food and energy
prices, soared 0.4%.  This was strongly above the expected 0.2%
rise and marked the largest jump in the core rate since November
2001.  Overall the CPI hit its fourth monthly increase in a row.
There has been a lot of discussion over the last few months about
the rising rate of inflation even though the government appeared
to ignore it.  The rising price of commodities including metals
like copper and rolled steel have hit multi-year highs.  Most
businesses have managed to pass along these higher costs to the
consumer.  Kimberly Clark (KMB) mentioned the need to raise
prices a couple of days ago to offset higher raw materials.  Of
course this really isn't that big of a surprise.  An expanding
economy increases demand and thus prices rise.  It's the Federal
Reserve's job to keep growth (and inflation) in check before it
gets out of hand.  Yesterday's super strong March retail sales
and today's CPI figures have nearly guaranteed a rate hike much
sooner than previously expected.  Gone are the estimates for the
Fed to wait until 2005.  Instead the market is pricing in a 46%
chance that the Fed will raise rates by 25 basis points by June
and has already priced in a 100% chance of a 1/4-point hike by
August.  That's why interest-rate sensitive stocks (and bonds)
are getting hit so hard.

Speaking of hikes Delta Airlines (DAL) needs to be able to raise
their ticket prices but increasing competition won't allow it.
DAL is the third largest airline in the U.S. and the company has
slowly been prepping investors for the worst with two earnings
warnings over the last quarter.  Those turned out to be too
generous.  The airliner lost $387 million in the first quarter or
$3.12 per share.  This was 10 cents worse than expected as
revenues of $3.29 billion came in under estimates.  Rising fuel
costs due to the sharp climb in crude oil has been a profit
sponge for the entire industry but DAL is also suffering from
labor costs.  They're asking their pilots to take a 30% pay cut
but the pilots union is only offering a 9% cut and they're
willing to give up a 4.5% pay raise this coming May.  Analysts
don't think that's going to be enough.  The airline is saddled
with billions in debt and is currently burning about $165 million
in cash a month.  It has enough cash to last it the next year
before it may have to consider bankruptcy.

Investors were also unhappy to hear Take-Two Interactive's (TTWO)
earnings warning this morning.  Estimates had been for a profit
of 33 cents a share based on revenues in the $220 million range.
The company now expects earnings (due out in May) to be a loss of
15 cents per share with revenues closer to $170 million.  The
company is blaming poor sales (obviously) and delayed game
releases.  TTWO's CEO Jeff Lapin said it was game over for him
and resigned.  The stock gapped down with an early 16% loss but
ended the day at $31.92, down 9%.

So enough with all the bad news let's hear the good news!  Dow
component DuPont (DD), who recently announced a job cut for 3,500
employees, rose 2.99% to $45.00 after pre-announcing stronger
earnings this morning.  DD raised its March earnings guidance
from 65-to-75 cents a share to 95 cents a share.  Analysts'
estimates had been pegged at 73 cents.  The company's press
release said that "The improved results reflect a strong quarter
for its Agriculture & Nutrition segment and higher than expected
volumes across most businesses."  Earnings are expected on April
27th.

Another cyclical/commodity related company Georgia-Pacific (GP)
pre-announced stronger earnings this morning as well.  The
housing boom has helped boost lumber prices close to 50% higher
from a year ago levels.  GP now expects earnings to be 60 cents
per share, excluding a 6-cent charge, compared to estimate for 48
cents.

Yet the good news doesn't stop there.  The real fireworks began
after the closing bell.  Intel's rival Advanced Micro Devices
(AMD) reported a blow out quarter!  A big surge in demand for its
flash memory combined with cost cutting and higher average
selling prices helped AMD report profits of $45.1 million (12
cents per share) versus a loss of $146.2 million (-42 cents) a
year ago.  Analysts were expecting AMD to report just 3 cents per
share.  Revenues came in at $1.24 billion topping estimates.
Unfortunately, AMD's Q2 guidance was rather lackluster.

Not so for Apple Computer (AAPL)!  AAPL is forecasting its Q3
(June quarter) will come in at 12 to 13 cents per share with
revenue surging to $1.93 billion compared to analyst estimates at
9 cents and $1.83 billion.  This news followed their stunning
earnings report after the bell tonight.  AAPL said its March
quarter revenues vaulted 29% to $1.91 billion, well above the
average estimates at $1.81 billion.  Profits were $53 million (14
cents) not counting a $7 million restructuring charge compared to
last year's March quarter profit of $14 million.  Earnings
estimates had been for AAPL to hit 10 cents per share.  Driving
the quarter was the iPod and the iPod mini.

While we can cheer for AAPL's success its earnings report is
rarely a market mover.  The same can't be said for Texas
Instruments (TXN).  The chipmaker reported earnings that were
inline at 21 cents per share but revenues surged almost 34% to
$2.94 billion compared to average estimates of $2.89 billion.
The 21-cent profit ($367 million) is a major improvement over
last year's 7-cent performance.  The jump in profits were boosted
by a rise in gross margins from 43.1% to 45% and lead to TXN's
strongest growth in a decade.  Furthermore the company guided
earnings for the current quarter in the 23 to 26 cent range
compared to consensus estimates of 23 cents.  TXN expects
revenues to fall between $3.08 and $3.325 billion, which is also
above estimates.

Hopefully this triple-shot of positive earnings reports can jump-
start the bulls tomorrow morning and this afternoon's last hour
rebound can get some follow through.  The only thing in our path
would be a negative earnings report from Citigroup (C) or a
bearish reading from New York Empire State index tomorrow
morning.  I don't think we have to worry about the NY Empire
index since the most recent round of economic reports have been
so strong.  Dow component Citigroup is important because it's one
of the biggest financial conglomerates on the planet but once
again with the economy recovering earnings should be strong.
Estimates for C are 94 cents a share.

Thursday also brings the weekly initial jobless claims and the
Philly Fed index but the same argument applies to both.  Recent
economic readings have been positive and these shouldn't be any
different.  The real headliner tomorrow will be earnings from
International Business Machines (IBM) after the closing bell.
IBM is such a monstrous tech company with operations in
semiconductors, hardware (servers & laptops), and consulting that
it alone can be used as a proxy for the technology sector(s).
IBM's guidance for the next quarter can set the tone for tech
stocks.  Estimates for Big Blue are 93 cents a share.

Overall I agree with Jim's caution yesterday.  This is options
expiration week and it's liable to remain volatile while Wall
Street sorts out its concerns over interest rates.  A quarter
point rate hike isn't going to kill the bull market or the
recovery but right now traders are over reacting.  Hopefully the
theme of stronger corporate profits can once again retake
investors focus but if we don't bounce soon I fear this April may
not live up to its historical track record.


************
FUTURES WRAP
************

Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp


********************
INDEX TRADER SUMMARY
********************

Perplexities of biblical proportions

That's it!  With a rise in consumer prices for the month of
March, where prices rose a stronger than expected 0.5%, signs of
inflation at the consumer level brought further selling into
Treasuries (that makes sense), while gold and other precious
metals thought to be a hedge again inflation saw selling (that
doesn't make sense), while the major indices finished their
session mixed (can't decide if its bullish or bearish).

OK... not EVERYTHING is supposed to make sense, and there was
some trade found which traders can reason.  Banks were under
further selling pressure as Treasury yields were on the rise with
the benchmark 10-year yield finishing up 4.2 basis point at
4.382%, but stocks may have found some solace that Treasury
yields did back off from their early morning highs, as if most of
the near-term damage has been done, a big move has been seen.

I'm not saying the selling in Treasuries is over, but after a
higher jolt in yields just after the CPI data was released,
yields edged back as the session wore on, which may have brought
some calm to broader equities.

U.S. Market Watch - 04/14/04 Close



Some notes from today's trade had the Semiconductor Index (SOX.X)
503.12 -0.61% seeing trade at its WEEKLY S1 of 501.84 and the
psychologically important 500 level, and all be darned if bulls
didn't defend that level by the close.

Banks provided the "wet blanket" trade on both the SPX and OEX.
I will have to say, if it weren't for some of the weakness found
in the banks and brokers, both the SPX/OEX would have shown a
very respectable trade today.

Disk Drives (DDX.X) took today's top spot among sector winners,
but may see a weak trade tomorrow after component SanDisk
(NASDAQ:SNDK) $32.51 +3.10 (also a component of the Semiconductor
HOLDRs (SMH)) traded down 15% in after-hours trade when reporting
quarterly earnings, but said it was cutting prices 20% on some of
its flash memory products.

Heck.  Here's some of this evening's after the close earnings
announcements and brief comments Jim Brown made.

Market Monitor - After the bell earnings



The biggest after-hours movers was SanDisk (SNDK) and Apple
Computer (NASDAQ:AAPL) $26.64 -1.07%, which has jumped to $29.16
in after-hours trade.  Advanced Micro Devices (AMD) $17.12 -0.23%
traded higher at $17.54, while Texas Instruments (TXN) $28.68
-1.03% is seeing higher trade at $29.05.

Market Snapshot / Internals - 04/14/04 Close



Price action by the close was stronger in my opinion than the
internals would have had me believing was possible.  I want to
quickly discuss the NYSE NH/NL indications, but show you what
I've been mentioning in recent sessions.

NYSE New Lows for 04/14/04 (Partial List) -



I wanted to address the growing number of new 52-week lows at the
NYSE, where using my QCharts "hot list" of new lows for the NYSE
and loading them into a portfolio quote list, I've shorted the
list by "Market Cap" (far right column of table), where my real
focus for the Index Wrap is the Industry Name.  Once we get past
the first nine names, we'll not that the bulk of those listed
below have a "bond" or fixed income type of name association.

Some additional notes I would make is that Family Dollar
(NYSE:FDO) $31.80 -1.21% is a well known, or recognizable name,
and its current market capitalization of $5.4 billion, while
sizeable, would have this stock, if an S&P 100 component, being
ranked #91 among market cap size, if it were a component of the
S&P 100 Index (OEX.X) 551.88.

What I'm getting at right now is that while the growing number of
new lows at the NYSE, which now handily outnumbers new highs, and
would normally suggest BEARISH leadership, I do think traders and
investors well served to "discount" the NYSE NH/NL indications a
bit as it would relate to a true leadership breadth indicator,
with the understanding that the bulk of new lows are most likely
coming from bond-related securities.  However, it would be this
observation (bond-related securities) and weakness that most
likely suggests a market counting on Fed rate hikes.

In PINK, I've boxed a new security, which just started trading on
the New York Stock Exchange calls the NYSE-100 Index iShares
(NYSE:NY) $61.06 -0.22%, which is a basket of larger NYSE-listed
stocks, which the NYSE hopes will eventually rival the NASDAQ-100
Tracking Stock (AMEX:QQQ) $36.81 +0.49%.  I would expect volume
to be light in the NYSE-100 iShares as it has only been trading
for eight sessions now.  Once it gets some trade history under
its belt (a couple of months), I would think volume begins to
pick up, where traders can begin using some charts.

Weekly Mortgage Bankers Association figures -



I wanted to show my spreadsheet I keep of the weekly Mortgage
Bankers Association data, and figures they report.  I tend to
associate Purchase Index with "home buying,"  Refinance Index
with "business at the banks, loan originators."  In PINK I've
marked current 30-year fixed rate mortgages (as of 04/09/04) as a
benchmarking point.

What stands out to me is how strong the Refinance Index numbers
were compared to early/mid-December.  What always amazes me is
how the stock market had the BIX.X trading a high of 362 on March
5, and now trading 333.

Pivot Analysis Matrix -



I say the BIX.X or banks and brokers have provided a "wet
blanket" for the SPX/OEX and with the BIX.X falling and closing
below its WEEKLY S2 and MONTHLY S1, I'm looking at tomorrow's
DAILY R2 being correlative with WEEKLY S2 as a level where a
near-term relief bounce could take place.

Remember Commercial Federal (CFB) $24.92 -0.91%, which warned on
earnings a couple of days ago at the $27 level?  This regional
banker traded a session low of $24.22 today, but closed right
back near its highs as of some bearish profit taking was found on
the weakness (could be bottom feeder bulls).  I'll check in on
CFB as it was dismantled on lowered guidance due to slowing in
its mortgage lending business.

The one thing a trader might keep an eye on tomorrow is the 10-
year YIELD, where some settling back in YIELD from a morning high
of 4.469% could bring in some relief to the banks should the 10-
year YIELD ($TNX.X) slip back below correlative DAILY S1 and
MONTHLY R2.  I mention this as the MARKET has been jittery with
rising YIELD, and a move back under might give some near-term
relief to the recent rise.

With upbeat AAPL and AMD after-hours trade, near-term resistance
correlations for the QQQ (tough little bugger of late) resides at
DAILY R1 and WEEKLY Pivot.  QQQ last ticked $36.86 in extended
hours, after trading as high as $36.93 in after-hours trade.

Dow Industrials (INDU) Chart - Daily Intervals



The INDU managed to claw its way back above correlative MONTHLY
Pivot and WEEKLY S1 prior to the close after finding buyers at
its rising 21-day SMA.  Further weakness below WEEKLY S2 of
10,292 most likely has MACD oscillator back below zero and gives
greater significance to current downward trend at the 10,500
level.

S&P 100 Index (OEX.X) Chart - Daily Intervals



I've tried to eyeball the DAILY S2 to DAILY R2 range within the
confines of current trade, where continued weakness in the
financials would bring a break of WEEKLY S2, where today's trade
saw the BIX.X seek out its DAILY S2 (for Wednesday) like a heat
seeking missile.  A relief bounce in the financial with some
still underpinning strength from technology has WEEKLY Pivot and
50-day as well as DAILY R2 right back in play.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals



The main note I would have to make with the QQQ today is that
despite weakness below yesterday's low, there was EVERY
OPPORTUNITY for bulls to at least concede the backfilling of the
nonfarm payroll gap higher.  What this suggests to me is that
there may well be some overly short bears below the $36.19 level
in front of the nonfarm payroll numbers that are still trying to
get squared up.  The reason I discuss bears covering is that I
would think a BULL would have been sitting lower at $36.19,
waiting for the backfill of the gap when weakness was being
found.  Especially has the SOX.X was teetering at 500.00.

Jeff Bailey


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The Option Investor Newsletter                Wednesday 04-14-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: CFC, PD, PDCO
Dropped Calls: TK (See Note)
Dropped Puts: None
Watch List: Education, Communication and Cyclicals


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*****************
STOP-LOSS UPDATES
*****************

CFC - put play
  Lower stop from $59.50 to $58.51

PD - put play
  Lower stop from 79.01 to $77.51

PDCO - call play
  Raise stop from 71.75 to 73.95


*************
DROPPED CALLS
*************

TK - call play
  This play is CLOSED.  We were never triggered.
  Look for the update tomorrow.


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************
DROPPED PUTS
************

None


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Brokerage Group, addressing the demand for personalized,
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**********
Watch List
**********

Education, Communication and Cyclicals

___________________________________________________________________

How to use this watch list:
  Readers can use the candidates below as a springboard for their
  own research.  Many are in the process of breaking support or
  resistance or in the process of starting new trends or
  extending old ones.  With your own due diligence these could be
  strong potential plays.
___________________________________________________________________


Career Education Corp - CECO - close: 61.52 change: +1.70

WHAT TO WATCH: CECO had been struggling under resistance at the
$60.00 mark for the last several days but a new price target to
$70 from a Wall Street analyst fueled a breakout on stronger than
average volume.  Nimble traders might want to keep an eye on it
for a continuation of the rally before CECO announces earnings on
April 20th.

Chart=


---

Telephone & Data Systems - TDS - close: 69.19 change: -0.21

WHAT TO WATCH: Yesterday TDS broke down under round-number
support at $70.00 and its technical support at its 50-dma.  It
also produced a new sell signal on its MACD indicator.  Normally
this would sound like the makings of a decent short play.
However, TDS bounced from its simple 100-dma in late March and
right now that 100-dma is near $67.50, less than $2 away.  Plus,
TDS' point-and-figure chart appears to be forming a triangle
pattern.  Longer-term traders might want to wait for that P&F
pattern to breakout up or down before considering positions.  All
traders may want to wait until after TDS' April 21st earnings
report before considering any sort of position.

Chart=


---

Cabot Microelectronics - CCMP - close: 40.90 change: -0.27

WHAT TO WATCH: We mentioned CCMP as a potential bearish candidate
in today's MarketMonitor.  The stock has been stuck in a long-
term down trend from its August 2003 highs.  There was a brief
rally in January but it quickly faded.  For the last few weeks
CCMP has found support at $40.00 while sellers continued to press
the trend of lower highs.  With its MACD rolling over (turning
bearish) again CCMP looks poised to breakdown under support at
$40.00.  Should this occur the next major support levels are $35
and $32.50 with minor support at $38.00.  Currently its P&F chart
points to a $33 price target and a move under $40 would create a
new triple-bottom sell signal.  Earnings are expected on April
22nd.

Chart=


---

Mohawk Industries - MHK - close: 79.18 change: -0.77

WHAT TO WATCH: After several weeks of consolidating its February
gains MHK is finally starting to show some weakness.  Yesterday
it broke down below its simple 50-dma and the $80.00 mark.  Today
is a small follow through on the move with a failed rally under
$80.00.  Its P&F chart shows the stock overbought with a fresh
triple-bottom breakdown sell signal.  Bears can probably target a
quick move to the $75 region but watch out for earnings on April
21st.

Chart=



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FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

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DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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