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The S&P 500 Earnings Reports That Are Moving The Market Today

ETF Watchlist
After blockbuster earnings reports from Google (GOOGL) and Microsoft (MSFT), the market seems as though it could be on the move again. Yesterday, the S&P dropped by about 1.5% as it had its worst day in quite some time. Whether or not we will have a continuation of that is still up in the air.
However, the earnings reports of these tech companies could be a positive sign for the rest of the market. Yet, with Meta (META) reporting today and Amazon (AMZN) queued up for tomorrow, we are not out of the woods. If these earnings are anything like GOOGL and MSFT, however, we may be in for a pleasant surprise.
SPDR S&P 500 ETF Trust (SPY)
In this case, where sectors have not quite given us much to go on, one of the best things to do is learn how to trade one of the most widely traded ETFs out there. The S&P 500 ETF (SPY) is one of the most liquid ETFs out there, which is why so many traders like to trade this. Instead of trading based on how one stock or sector is trending, you are now looking at trading a collective of these stocks and sectors.
Important to note, the top weighted stocks in the ETF are Apple (AAPL), MSFT, and AMZN, needless to say, this is a big week for this ETF.
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Join my Smart Trades options trading service today to see exactly how my students and I trade these types of scenarios! Smart Trades is where I teach my students how I trade options on some of the largest ETFs on the exchange. As you learn, you’ll get exclusive access to all my trades with notifications any time one is put on. Now, you can learn how many use this high-income skill to achieve financial freedom. Join today!
I look forward to trading with you, but until then, as always…
Good Luck With Your Trading!
Christian Tharp, CMT

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Investors Alley by TIFIN

Add This Cheap Chip Play to Your Portfolio

The pandemic certainly turned the semiconductor industry on its head.

Despite record production of semiconductors, shortages everywhere led to months-long waiting lists for many consumer products. To meet consumer demand, semiconductor makers ramped up supply even more.

But then inflation arrived and decided to stay awhile. Central banks responded by raising rates, and economies slowed. The appetite for items like consumer electronics waned, leaving inventories stuffed full of chips.

The ramifications were felt all along the semiconductor supply chain.

For example, when Apple (AAPL) reduced orders of memory chips last year, supplier Micron Technology (MU) saw its sales collapse. To preserve cash flow, Micron chose to cut capital spending by 40% in 2023.

That, of course, means it will need less equipment from its supplier Lam Research (LRCX). Lam now expects the wafer front-end market—which relates to the first process in chip fabrication—to shrink around 30% in 2023, to $70 billion. As a natural consequence, Lam’s share price is down by a third since the start of 2022. That makes it an interesting stock to buy now. Let me explain.

Lam Research: Profitable and Cheap

Lam Research sells the equipment used to make semiconductor wafers. This includes the deposition machines that deposit layers of metal, the etch machines that selectively remove some of those layers, and the cleaning machines that take away unwanted particles between stages. Aside from Micron, Lam’s customers include these other semiconductor titans: Samsung, SK Hynix, Intel (INTC), and Taiwan Semiconductor (TSM).

Historically, Lam has focused mostly on the memory market. Last year, 50% of its sales came from either NAND or DRAM memory chip manufacturers. Memory chips exposure to demand in consumer electronics makes demand for them highly cyclical.

Less than a fifth of LAM’s sales came from logic chips, where, thanks to cloud computing exposure, demand is more consistent and expected to grow quite rapidly amid rising artificial intelligence investments.

This cyclicality in Lam’s business largely explains why it trades at a steep discount to other chip equipment manufacturers. For example, ASML (ASML), which sells the photolithography machines needed to produce the most advanced logic chips, trades on a forward price to earnings ratio of 31, versus less than 15 for Lam’s shares.

In addition to the cyclicality of consumer electronics demand, the company is facing another problem.

Last year, the U.S. imposed strict sanctions against Chinese semiconductor manufacturers, barring companies from selling chip designs and manufacturing equipment to Chinese businesses. Lam predicted these restrictions would result in a $2 billion to $2.5 billion hit to sales. That led to Wall Street analysts cutting their 2023 earnings forecast by 13%.

Despite all of this, Lam’s leadership position in a consolidated sector allows it to be highly profitable. In recent years, its operating margin has exceeded 25%; it hit 31.1% in the year to June 2022. This enabled Lam to generate a five-year average return on equity of over 50%.

Lam also generates a good free cash flow yield of 5%, well ahead of ASML and equal to its close rival, Applied Materials (AMAT). In the last two years, the company spent $1.1 billion on capital expenditure, but still managed to generate $5.5 billion in free cash flow.

Lam’s Bright Future

Lam’s management is wisely using some of that capital expenditure to move away from its reliance on the memory chip market. Some of these investments include atomic layer deposition and selective etch technologies.

The company is already the market leader in dry etch, and a prominent player in the deposition segment of the wafer fab equipment industry. The combination of these two is critical during the chip making process, along with photolithography (which produces the mask that exposes areas for materials to be deposited or removed).

Lam provides customers with some of the most advanced tools in these niche segments. And its leadership position creates scale advantages that fuel its research and development spending at levels only Applied Materials and Tokyo Electron (TOELY) can match.

We cannot overlook the fact that there is a major tailwind blowing in Lam’s favor. This comes in the form of the U.S. government’s efforts to boost domestic chip manufacturing. Last year’s Chips and Science Act includes $39 billion in manufacturing incentives for chip makers. This has produced results, with commitments from Intel, Samsung, and TSM to invest over $100 billion between them in the U.S. over the coming years.

So, while Lam may lose much of its Chinese business, the increase in investment into the U.S. from these companies will likely make up for it.

Keep in mind, too, that other nations are not sitting by idly; in fact, some are also offering incentives to chip companies to build semiconductor manufacturing capacity. For instance, in South Korea, Samsung has been offered incentives to invest $230 billion in a new memory chip manufacturing facility over the next 20 years.

So, while the near-term outlook is murky, Lam’s future as a leading equipment manufacturer in a heavily-subsidized industry looks bright. Its relationships with all the top chip makers in the world, combined with historically strong levels of capex spending in the industry, leaves Lam Research with a quasi-monopolistic position in its niche.

That should help it to continue to generate strong profit margins and consistent cash flows. LRCX is a buy in the $480 to $520 range.
It’s raised its dividend 37.5% on average, could be acquired, benefits from rising interest rates, trading at massive discount, and pays an 8% yield. This is my top pick for income during a rough market.Click here for details.

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The Yin and Yang of Energy Midstream Stocks

In these uncertain times for investors, energy midstream stocks offer an island of stability. This sector provides an attractive combination of current yield and dividend growth. However, midstream companies divide into two distinct categories, and the differences are important.

Energy midstream covers the movement and storage of energy commodities from the upstream drillers to the downstream refining, manufacturing, and utility companies. This graphic from the Alerian Midstream Energy Index fact sheet shows the services the companies included in the index offer.

Before the 2015-2016 energy sector crash, the majority of midstream companies were organized as master limited partnerships (MLPs). The crash forced massive restructuring, and many companies converted to corporations. Currently, the midstream sector includes some companies organized as corporations and others that have retained their MLP business structure.

If you invest in an MLP, you buy limited partner units. As a limited partner, you will receive a Schedule K-1 to use when reporting your taxes. The distributions (dividends) paid by an MLP are classified as return of capital and are not taxable income. Any tax consequences come from the K-1, and generally, MLP income will not be taxed.

Midstream MLP units should not be owned in a qualified retirement plan such as an IRA or Roth IRA, as they can cause severe negative tax consequences. The reason is too long to go into here. Just don’t do it.

Midstream corporate shares are just like owning shares of any other publicly traded company. You receive a Form 1099 for reporting dividend income, which will be qualified dividends. You can own these shares in a retirement plan without any negative consequences.

The differences between the two midstream business types have led to an interesting divergence in dividend yields. To illustrate, let’s compare three large midstream corporations to three similar MLPs. I want to look at current yields and dividend growth for the last two years.

Midstream Corporation:

Kinder Morgan, Inc. (KMI): Current yield: 6.27%; two-year dividend growth: 5.7%

ONEOK, Inc. (OKE): Current yield: 5.72%; dividend growth: 2.1%

The Williams Companies (WMB): Current yield: 5.94%; dividend growth: 9.1%

Master Limited Partnerships:

Enterprise Product Partners LP (EPD): Current yield: 7.26%; two-year dividend growth: 8.9%

Energy Transfer LP (ET): Current yield: 9.45%; dividend growth: 100%

Plains All American Pipeline LP (PAA): Current yield: 8.17%; dividend growth: 95.5%

You can see that MLPs sport higher yields to go along with the tax-advantaged income. The MLPs have also been more aggressive with dividend growth coming out of the pandemic. Going forward, I expect the midstream corporations to grow dividends at a mid-single-digit annual rate and the MLPs to grow theirs in the high single digits.

Outside of the IRA problem, MLPs currently provide much better investment potential. If you want to own them in an IRA, look at an MLP-focused ETF. The Alerian MLP ETF (AMLP) tracks the index with the same name. The InfraCap MLP ETF (AMZA) is an actively managed fund.

Unique in the space is Plains GP Holdings LP (PAGP). Each PAGP share is backed by one PAA unit and pays identical distributions. However, if you invest in PAGP, you get a Form 1099 for tax reporting, not a K-1—the market prices PAGP to yield about 0.3% less than PAA.
You can collect 1 dividend check every day for LIFE. To get started, all you need is as little as $605. Out of 4,174 dividend stocks, there are only 33 you need to buy to collect. Click here to get the full details.

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Wealthpop

1 Medical Device Stock With A Clear Path To Explosive Growth

Both of the major indexes have continued their macro trends higher, or at least, not lower after another week of consolidated trading. However, since October bottoms, the buying pressure has remained robust, even despite gray clouds that loom over the economy. An encouraging sign that supports this sentiment is a golden cross (the 50-day moving average crossing up through the 200-day moving average) has developed for both of these indexes. That in itself doesn’t mean higher prices are ahead, however, until that signal is broken, investors should expect this positive trend to continue a bit longer.
That said, the next major hurdle for the S&P 500 will be getting back above the 20-month moving average (teal line shown below) for two consecutive closes, which would increase the likelihood the bear market we were in may finally be over for good. However, this would require a monthly close above 4220 to confirm.

(Source: TC2000.com)
The market is now setting up for a slate of earnings reports from some tech giants like Meta (META), Microsoft (MSFT), Alphabet (GOOG), and Amazon (AMZN), which could set the stage for another leg higher or a reverse. Tesla (TSLA) disappointed last week when it noted that it was willing to chase additional market share at the expense of short-term margins, however, the reports set to be released this week will be a much better determinant of market direction. 
In addition, we should get a better gauge of consumer health when companies like McDonald’s (MCD), Crocs (CROX), Dominos Pizza (DPZ), First Watch Restaurant Group (FWRG), and several homebuilders report over the coming two weeks.
Assuming earnings from Big Tech and large-cap retail names are solid, this could push the market towards its first major resistance level at 4315 on the S&P 500. Hence, this week and the next couple of weeks will be pivotal for the market.
Valuation & Sentiment
From a valuation and sentiment standpoint, we’ve seen little change from the prior week. Valuations have continued to remain in neutral territory overall and most sentiment indicators also on neutral readings. These neutral readings are based on the market not being expensive, but not overly cheap either. Sentiment has been evenly divided between the bulls and bears with the elevated pessimism levels from March during the brief banking crisis dissipating.
In fact, as the chart below shows, put/call readings have dropped to their lowest levels in months, the opposite of December/January when it was a great time to start putting capital to work in undervalued names.

(Source: Multpl.com, Author’s Chart)

(Source: CBOE Data, Author’s Chart)
Action Plan
As discussed in past updates, we saw a very rare breadth thrust on January 12th that occurs when the advancers/decliners ratio (summed 10-day average of NYSE advancers/decliners) goes above 1.98, which takes extreme buying pressure to occur. The success rate of this indicator is well documented, so it requires that we continue to take it into account until the point at which it is invalidated. This rare signal overrides valuation and sentiment and continues to point to a bullish bias for the market over the next nine months.

(Source: Market Data, Author’s Table)
That said, because these readings aren’t confirmed by bullish readings for valuation/sentiment indicators, I’ve continued to be only 70-75% invested given that it’s more difficult to have conviction on short-term market direction, even if the intermediate bias is higher (6-12 months). 
Plus, the market remains in the upper portion of its short-term support/resistance range (3765-4315), resulting in a balanced reward/risk profile for the market heading into the week. 
So, while I would gladly add exposure to my position in the S&P 500 ETF (SPY) if we were to pull back below 3800 and closer to short-term support, I don’t see a compelling enough reason to be aggressive at current levels.

(Source: TC2000.com)
However, there are always opportunities out there if one is willing to sift through the rubble and look for sectors that are out of favor temporarily or names that are undervalued relative to their peer group. 
In this week’s update, we’ll look at a medical devices stock that is trying to break out of its long-term downtrend and that has been unfairly punished by the market, given its impressive growth rates. This company is InMode Ltd. (INMD), a mid-cap medical devices company that was founded in 2008.
However…
If you want the full analysis on today’s stock, you’ll have to sign up for our Eagle Vision newsletter. Being a member allows you to stay on top of all that’s going on in the market with industry leading insight, as well as show you where we think the next big opportunity is in the market.
Imagine it’s your own person stock sommelier, picking the very best the market has to offer each and every week. Sign up to get access to this week’s stock, before it’s too late!

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Even the Pros Get Market Timing Wrong

Even with professional investors, herd mentality makes successful investing a daunting task. This year, as you see prediction after prediction about a market decline, stocks have confounded the experts with solid gains. My Dividend Hunter strategy shows investors how to not fall into the “buy high, sell low” wealth destruction cycle.

Last week, one of the morning emails from Bloomberg noted: “…stocks are doing well. 2023 continues to be a great year. The S&P 500 is already up over 8%, while the NASDAQ is already up over 16%. If you just stopped things here, 2023 is a winner.”

The following paragraph discusses how, despite the good results in the market, sentiment remains negative. The exact words were: “…rallies are always hated these days.” The most recent Bank of America fund manager survey shows that active fund managers are the most pessimistic they have been since March 2009. Here is the tell-tale chart:

The chart shows the relative weighting between stocks and bonds by the fund/asset managers surveyed by the Bank of America. The peaks show when the investment pros were most heavily weighted in stocks and the low points where they had the lowest percentage of assets in the stock market.

For me, a few of the highlighted dates pop off the chart. March 2009 marked the absolute bottom of the Great Financial Crisis bear market. The post-pandemic bull market started in late Spring 2020 and peaked during the very first days of 2022. Last year was a true bear market, and now that stocks have turned up, money manager stock allocations are at the lowest level since 2009.

Two points to take away from this: first, no one can predict market downturns and bull markets. Professional fund managers consistently get it wrong. Second, there is a huge herd mentality among financial professionals. They all read the same reports and look at the same data. Also, those folks who manage money tend to not be the ones who show up on the financial news making bold predictions.

I don’t know if we are on the verge of a new bull market. My opinion is that stocks will stay range bound as they have for almost the last year. I may be wrong. (I am probably wrong.) We now operate in an investing world where every little bit of news moves the market until the next news item comes along.

For my Dividend Hunter subscribers, I recommend and teach a strategy to invest in building a growing income stream using high-yield investments, stocks, and ETFs. The focus is not on share prices because they are not predictable.

However, when you want to build up your portfolio income, you naturally end up buying more when prices are down, and you will see your portfolio value grow nicely when the market turns bullish. All along the way, the Dividend Hunter strategy focuses on building a growing income stream, a goal entirely within your control.

Let’s close out with an investment idea. REITs have performed poorly (actually, terribly) for the last 15 months. I don’t know if real estate stocks have bottomed, but I know you can invest in the Hoya Capital High Dividend Yield ETF (RIET) and earn a 10% yield with monthly dividends until the investing world realizes that real estate will never go away.
You can collect 1 dividend check every day for LIFE. To get started, all you need is as little as $605. Out of 4,174 dividend stocks, there are only 33 you need to buy to collect. Click here to get the full details.

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Gold Update: Hard Top or Glass Ceiling?

Gold price came very close to hitting the double barrier at $2,070-$2,100 of the black path target and the upper boundary of the bullish trend channel outlined earlier this month. The new 1-year top has been established at $2,063.
You were amazingly accurate this time as most of the votes were for the black path to lead the way. The market has since reversed to the downside, raising the question of whether it was a hard top or a glass ceiling.
To answer this question, let me show you an updated chart below.
Source: TradingView
The price has slid down to the pink mid-channel support within the black bullish trend channel.

In the RSI sub-chart, we can clearly spot a bearish divergence as the falling peaks didn’t confirm the new top in the price chart. This has been playing out, pushing the price down. The indicator’s reading has reached the key support of 50, just like the price.
Let us watch how the price would react at this double edge of the mid-channel and the RSI’s support. The price still could bounce to the upside and challenge the recent top as well as the upside of the trend.
The bearish signal would come on the breakdown. In this case, the black path would be confirmed and the top of $2,063 would act as a peak of the first large move to the upside.

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In the following chart I will zoom out and share a bigger picture on the weekly time frame.
Source: TradingView
This could be an eye-opening chart with three major scenarios. Sometimes it is worth to zoom out of short time frames and squeeze the chart to see a bigger map that appears.
The gold price chart is showing a potential Triple Top pattern, which poses a major risk for the price. The pattern is formed by three peaks in the same area between $2,000 and $2,100.
If this pattern is confirmed, it could be unpleasant for gold investors as the price would be expected to retest the valley of 2018 at $1,167, which is where the previous major bullish move had started (red arrow).

It seems that the black path may have been the preferred option before taking a broader view of the chart.
However, upon examination of the chart, it appears that the current top may just be the first move up, which has been retraced within a middle-sized consolidation. It is anticipated that after completion of the consolidation, another move up could potentially reach the $2,200 area.
The green path suggests that the zigzags between $2,100 and $1,600 represent a large consolidation, but the final move down to retest the green box has not yet occurred for completion. Once that happens, a large upside move of greater magnitude could potentially emerge, reaching the $2,500 area.

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Intelligent trades!
Aibek BurabayevINO.com Contributor
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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How Can You Play This Arms Race?

The United Nations and other allied states around the world have been supporting Ukraine with military supplies since the very early days of the war. With the war in Europe still raging more than a year after it began, allied munitions stockpiles and military supplies are starting to get thin.
But, at some point, these countries’ reserves will reach a depleted level they are no longer comfortable with and be forced to restock. Let’s be honest; that point has already come and gone.
So today, countries in Europe and America are not only still giving Ukranie military aid, but also replacing their arms.
But something similar is also occurring in Asia, as China continues with aggressive talk pertaining to Taiwan. Furthermore, China has been heavily spending on its own military and set its defense spending growth at 7.2% in 2023, in line with where it was in 2022.

Even here in the U.S., the projected 2024 budget for defense spending came in at $842 billion, or $26 billion higher than where it was in 2023 and more than $100 billion higher than in 2022.
Even if the war weren’t taking place in Europe today, there would likely be an arms race around the world, and many believe it will only get worse since geopolitical tensions are still brewing in Asia.
So, how can you play this arms race?
Buy Defense and Aerospace Exchange Traded Funds and relax.
Not sure which ones to buy? Let’s take a look at a few.
The first ETF I would look at is the iShares U.S. Aerospace & Defense ETF (ITA).
ITA is the largest Defense and Aerospace ETF, with just over $6 billion in assets under management. ITA also has a reasonable expense ratio at 0.39% and has had a solid performance over the last few years. ITA is up 4.32% year-to-date but more than 14.9% annualized over the previous three years. ITA also has 100% of its assets invested in U.S. companies and has 37 holdings.
The next ETF I would look at is the Invesco Aerospace & Defense ETF (PPA).
PPA is the second largest defense ETF by assets under management with $1.9 billion. PPA’s expense ratio is a little higher at 0.61%. PPA also has a small percentage of its holdings from outside the U.S. PPA has also performed well year-to-date with a gain of 4.6%, and it is up 7.79% annualized over the last five years and 15% annualized over the previous ten years.
Next, we have the SPDR S&P Aerospace & Defense ETF (XAR) with $1.5 billion in assets is slightly smaller than PPA.
XAR has 34 holdings, all of which are based in the U.S. and has the lowest expense ratio yet at just 0.35%. XAR’s performance is also about the same as PPA and ITA, so don’t tell yourself the lower fee means worse performance. Out of the vanilla Aerospace and Defense ETFs, XAR is probably the best, simply because it is the cheapest.
The other two ETFs I would look at are the ARK Space Exploration & Innovation ETF (ARKX) and the leveraged Direxion Daily Aerospace & Defense Bull 3X Shares ETF (DFEN).

Cathy Wood led ARKX ETF combined defense, aerospace and space exploration stocks together since so many have a lot in common or sell products in two or even all three industries. However, the ARKX fund charges 0.70% expense ratio and doesn’t have the best performance during its short history.
The DFERN fund isn’t any less risky since it is three times leveraged ETF. DFEN tracks the DJ US Select Aerospace and Defense index but will move three times the magnitude. Furthermore, DFEN charges an 0.97% expense ratio and should only be held daily. DFEN is up 9.54% year-to-date but down 16% annualized over the last five years.
Unfortunately, this is our world, where war rages, and arms races are never-ending.
But since this is where we are, you may want to make money on it, and the above ETFs are a few ways you can do so.
Matt ThalmanINO.com ContributorFollow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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Wealthpop

A Big Move Is Coming ⎯ These Are The Levels To Know

The chop continues… As the market enters its third week of consolidation, this week could finally be the week that market gives us some movement. Why? A slate of earnings reports are set to be released this week. Among those to pay attention to Microsoft (MSFT), Meta (META), Google (GOOGL), and Amazon (AMZN). Needless to say, if these earnings all come in better than expectations, this is a healthy sign for the market overall.
However, while this type of market can seem frustrating, there is one good thing about this consolidation (beside the impending move), we have very defined levels to use as our roadmap of the market.
To the upside, we have an idea of what levels we need to break and hold above for a part 2 of the rally we saw not too long ago. To the downside, the same is true. Now, we just need to be patient enough to wait for the market to bring us trades worth making. Check out my video below for some of these major levels to have on watch this week!
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If you want to learn more about my strategy and how we find trades that consistently net us over 100%, you’ll have to join my Smart Trades options trading service today! Smart Trades is where I teach my students how I trade options on some of the largest ETFs on the exchange. As you learn, you’ll get exclusive access to all my trades with notifications any time one is put on. Now, you can learn how many use this high-income skill to achieve financial freedom. Join today!
I look forward to trading with you, but until then, as always…
Good Luck With Your Trading!
Christian Tharp, CMT

A Big Move Is Coming ⎯ These Are The Levels To Know Read More »

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These 2 Telecom Stocks Are Rated Buy

We live in an increasingly connected world, and telecom companies are helping us achieve faster connectivity. With the number of mobile subscribers increasing, the demand for high-speed data connectivity has soared. The demand for faster connectivity is driving investments in 5G infrastructure and, consequently, driving the growth of the telecom sector. To capitalize on the

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