4.23.14 – Where Wolf? There Wolf!

Well, it was a nice six-day run up but we didn’t quite make it to an UnCola Day (7 Up).  The Dow Industrials slipped back 12 points to close at 16,501.65.  The S&P 500 Index pulled back .22% but the tech-heavy Nasdaq Composite fared poorly, down .83%.  Precious metals were little changed and oil prices were slightly lower.

GDXJ, the junior gold miners ETF, rose 2.63%.  FXP, the leveraged short China 25 Index ETF, gained 2.46%.  SQQQ, the leveraged inverse Nasdaq-100 Index ETF, was up 2.67%.  Please click on the symbols for details.

It’s been a heckuva ride the past few weeks, hasn’t it?  The S&P pulled back about 4.3% from its high at the beginning of the month but the Nasdaq-100 slipped 8.8% from its high in March and only recovered about 50% of that before weakening today.  And while there’s no way of knowing whether or not the weakness will continue, that doesn’t mean we can’t look for buying opportunities in the meantime.  As long as the broad indexes are above both their 50-day and 200-day SMAs, I’ll keep trading the long side.

There are many ways to search for ETF’s that should outperform but one of my favorite’s is to hunt for wolf packs.  “Wolf pack” refers to the idea that stocks move in groups, like a pack of wolves.  Find a few outperforming stocks and then identify the industry group they are in; it’s likely that other stocks in the group will rise in sympathy.  Now find the ETF or ETFs that best represent the stocks in the wolf pack.  I find High Growth Stock Investor software ideal for finding outperforming wolf packs.

The search only takes a few minutes.  I begin by updating HGSI’s database each morning.  It uses end of day data only so I don’t use HGSI for real-time tracking of ETF’s.  Next, I use a filter coded into HGSI that looks for Wolf Packs that have been trading higher over the last one and five days:

Wolf pack 1

The filter criteria are last close >= $5; average daily volume >= 100,000 shares; and the One day and Five day % price change for the Industry Group Index > 0%.  This gave me 2,342 stocks that met this criteria.  Each of these is a data field.  You can always make these more or less restrictive, e.g., a price minimum of $10 or an average volume minimum of 50,000 shares.

Next, I winnow this list down to the 100 best performing stocks.  I start by ranking the 2,342 stocks by their Raw Combo rank.  HGSI’s ranking system computes weighted values for each data field selected by the user and then combines all the weighted values. Combo ranking values can then be displayed in two new data fields called Combo Ranking and Raw Combo Ranking. Combo Ranking uses the same 1-99 ranking system that was popularized by William O’Neil for Investors Business Daily and Daily Graphs. The Raw Combo Ranking data field shows you the value from the actual computation for greater accuracy.

The screen capture below shows the top 25 performing stocks ranked by their Raw Combo.  You can make the capture larger by clicking on it:

Wolf pack 2

The two downward pointing arrows show the 1- and 5-day percent price change for the industry group, which is in the next column.

Next, I create a custom group of the top 100 performing stocks.  That only takes a minute.  And now the last step.  I click on the pie chart icon (the Spectrum Analyzer) above the column Force Index 13D EMA and create a pie chart breaking down the top 100 stocks by their respective industry groups:

Wolf pack 3

A full 19% of the top 100 stocks were in the pharmaceutical industry.  Yesterday that group rose 1.55% and over the past five trading days has risen 5.33%.  Semiconductors were the next most populated group with 12 stocks and both Biotech and Auto Parts & Equipment were tied for third with 8% each.

Finding ETFs that correspond to these groups is easy to do.  A Google search brought up among others XPH for pharmaceuticals; SMH for semiconductors; IBB for biotech; there isn’t an ETF for auto parts.

You don’t necessarily need to buy the ETF corresponding to the best performing stocks.  If you perform this process daily you can see which groups are gaining and losing strength.  For example, yesterday Trucking and Airlines made up 6% and 5% respectively of the top 100 stocks.  Are these percentages higher or lower than on last Friday and this Monday?  If higher, you are looking at a group or groups rotating into favor; if lower the group or groups are rotating out of favor, or at least, no longer being chased like they had been.  On today’s down day, IYT, the Dow Jones Transportation Average Index ETF, was up .11%.

Another approach is to find the corresponding ETF and see if it fires off using any of Larry Connors swing trade strategies.  There are many different ways to skin the cat or in this case, the wolf.  Repeat this process on a regular basis and it should keep you on the right side of the market.

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4.11.14 – Blog Will Resume April 23

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4.10.14 – Wipeout!

They’re throwing the baby out with the bathwater as anything that had a nice return last  year is being sold this year.  Biotechs are getting hammered big time.  Earnings reports were mixed today.  The Dow Industrials cratered 267 points to close at 16,170.22.  The S&P 500 Index left the ring whimpering after losing 2.09%.  And the Nasdaq Composite was pulverized, falling 3.10%.  It doesn’t help that the situation is getting more tense in Ukraine.  Gold was up sharply and silver rose.  Treasury yields continue to fall in the flight to safety.

SQQQ, the leveraged short Nasdaq-100 Index ETF, soared 9.17% on huge volume.  FAZ, the 3x leveraged Financial Bear ETF, was up 6.01%.  Volatility spiked and VXX, the VIX short-term futures ETN, gained 5.69%.  Please click on the symbol for details.

Yesterday I wrote, “Despite the nice move today I still think there’s going to be another leg down.”  Guess so.  Not that I’m a soothsayer, mind you, but I know we are flying into cyclical headwinds. The cycle I’m referring to is the Presidential Cycle, developed by Yale Hirsch.  Dana Lyons, a  senior vice president at J. Lyons Fund Management in Illinois, describes it well:

“The Presidential Cycle refers to the pattern of behavior in stock prices throughout the four years of a presidential term. While there are many factors influencing stock prices during a particular period of a particular presidential term, it is one of the more historically consistent seasonal patterns. Specifically, stocks tend to be strong during certain periods of a president’s term and weaker during others. Historically, the worst 2-quarter stretch of the presidential cycle is the period spanning the 2nd and 3rd quarters of the second year of a President’s Term. This stretch begins on April 1.”

“Over the past 100 years, the average return in the Dow Jones Industrial Average for the 2-quarter stretch ending with the 3rd quarter of year 2 of the presidential cycle is minus 1%.”

Other indexes also fare poorly: since 1940 the S&P 500 declined -2.2% in Q2 and -0.6% in Q3 of Year 2.  Schaeffer’s Investment Research prepared the chart below that illustrates the average decline since 1978:


So where do you go from here?  While there are some non-inverse ETF’s that ride out the decline quite nicely (like PFF, the U.S. Preferred Stock Index ETF, and TLT, the 20+ year Treasury Bond ETF), for the most part you want to focus on inverse ETF’s.  Just like it’s smart to buy an ETF on a pullback in a rising market, so too you can look to buy inverse ETF’s when they pull back during upthrusts in a declining market.  There are dozens of inverse ETF’s out there, both unleveraged and leveraged, broad market index and sector.  Don’t know of any off the top of your head?  Start your research here.

Do you know which non-inverse ETF was up .47% today?  Or which stock was up 3.06%?  You’d know what they are if you read Subscribers Only!  All it takes is $5/month to see what looks good and new subscribers even get the first two weeks free.

The next few months could be rocky, that’s for sure.  Just remember that cash is also a position and while savings rates yield squat, it beats losing money.  I’ll be gone for the next two weeks so keep your head about you when everyone else is losing theirs.  See you on April 23.

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4.9.14 – That’s Better

Now that’s what I’m talking about – a nice follow-through to the upside day.  Not that the market is totally out of the woods, mind you – the Nasdaq Composite (up 1.72% today) is still below its 50-day SMA and the volume is decreasing as the index rises.  The S&P 500 Index (up 1.09%) bounced off its 50-day SMA yesterday and the Dow Industrials were up 1.11%.  A reading of today’s Fed minutes eased concerns about the timing of future interest rate hikes.  Oil closed higher.

TQQQ, the leveraged Nasdaq-100 Index ETF, rose 5.13% on above-average but declining volume compared to the past few days.  IBB, the biotech ETF, rallied 4.10%.  XPH, the pharmaceutical ETF, gained 3.59%.  TAN, the solar ETF, was up 3.02% on below average volume.  Please click on the symbols for details.

After being taken out to the woodshed lately, GLD, the gold ETF, is showing signs of life.  It’s setting up a buy signal on the Volume Zone and Price Zone Oscillators.  Developed by Walid Khalil, in Bull market conditions the oscillators typically trade in a range between zero and +60.  In Bear market conditions they typically trade between zero and -60.  As the zero line is reached you’ll see the oscillators bounce off and depending upon market conditions, either start rising back up or falling back down.

The PZO/VZO charts below show that since around March 20 the oscillators crossed below zero and have been trading between zero and -45 to -55.  GLD’s price has been below the 60-day EMA since March 26 and the combination of PZO/VZO below zero and price below the EMA is a short setup.  But now GLD has closed for two days above its 60-day EMA.  You can make the chart full-screen by clicking on it:


The oscillators need to close above zero, preferably above +15, with the price above the 60-day EMA before there will be a buy signal.  PZO closed today at 2.49 and VZO at -2.68, so it’s getting close.

Despite the nice move today I still think there’s going to be another leg down.  But the market doesn’t care what I think; it will do what it’s going to do.  And what that is is something we will know, in the fullness of time.

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4.8.14 – Is That The Best You Can Do?

If today’s wimpy “recovery” is any indication of what comes next, this market is in deep kimchee.  The Dow Industrials managed a 10 point gain on slightly above average volume to close at 16,256.14.  The S&P 500 Index gained .38% while the beaten-down Nasdaq Composite rose .81%.  Oil prices were markedly higher.  Later this week earnings announcements begin so that will be what market watchers focus on.

GDXJ, the junior gold miners ETF, was up again today, this time 4.26%.  PGJ, the Golden Dragon China ETF, was a winner to the tune of 4.54%.  Yesterday it pulled back to but held at its 200-day SMA. TUR, the Turkey Index ETF, closed with a 2.88% gain and is back above its 200-day SMA for the first time since May of last year.  Please click on the symbol for details.

Have you ever met my friend, Jed Clampett, who hails from Bug Tussle?  Well, there was this one day he was shootin’ at some food, when up through the ground came a bubblin’ crude.  Black gold.  Texas tea….  Maybe that’s why UCO, the leveraged crude oil ETF, was up another 3.47% today.  Despite his folksy, country ways ol’ Uncle Jed is a pretty savvy technical analyst.  He mentioned to me that UCO was “makin’ a powerful good look daily pattern” so I took a look.  You can make the chart full-screen by clicking on it:


From January through March UCO climbed from 27.61 to 36.71.  This move is marked “1″ on the chart.  The pullback labeled “2″ was a 50% retracement as measured by a Fibonacci series.  Technical analysts consider a retracement of 50% or less to mean the previous trend remains in force.

The numbers 1,2 and 3 represent possible Elliott waves.  I know just enough about Elliott Wave Theory (EWT) to be dangerous so let me give you a very brief summary.  EWT was developed by Ralph Elliott back in the 1930′s.  He proposed that market action occurs in in specific patterns, called waves.  More specifically, he identified 13 directional waves that are repetitive in form.  The information below including the charts was taken verbatim from the Elliott Wave International web site:

The Five Wave Pattern

“In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4, as shown in Figure 1. The two interruptions are apparently a requisite for overall directional movement to occur.”

Elliott wave

“At any time, the market may be identified as being somewhere in the basic five wave pattern at the largest degree of trend. Because the five wave pattern is the overriding form of market progress, all other patterns are subsumed by it.”

Wave Mode

“There are two modes of wave development: impulsive and corrective. Impulsive waves have a five wave structure, while corrective waves have a three wave structure or a variation thereof. Impulsive mode is employed by both the five wave pattern of Figure 1 and its same-directional components, i.e., waves 1, 3 and 5. Their structures are called “impulsive” because they powerfully impel the market. Corrective mode is employed by all countertrend interruptions, which include waves 2 and 4 in Figure 1. Their structures are called “corrective” because they can accomplish only a partial retracement, or “correction,” of the progress achieved by any preceding impulsive wave. Thus, the two modes are fundamentally different, both in their roles and in their construction, as will be detailed in an upcoming section.”

The Complete Cycle

“A five-wave impulse (whose subwaves are denoted by numbers) is followed by a three-wave correction (whose subwaves are denoted by letters) to form a complete cycle of eight waves. The concept of five waves up followed by three waves down is shown in Figure 2.”



We won’t be able to remove the question mark from “3″ in the daily chart until UCO takes out the March 3rd high.  Note on the chart how the 50-day SMA held as support when tested on the 50% pullback that led me to label the move “wave 2.”

So how much higher can UCO climb?  Harmonic trading theory offers a clue: AB=CD.  In harmonic trading the length of Wave 1 is labeled AB and the length of Wave 3 is labeled CD.  The length of AB should equal the length of CD.  Sometimes there is an extension added to the calculation, how much depending upon the depth of the retracement.  But looked at in its simplest form, the length of CD should equal the length of AB.  Since AB is 9.10 points high (36.71 – 27.61) then CD should equal 9.10  If C started at the bottom of the retracement (31.61) then adding 9.10 to this gives a target objective of 40.71, which is just slightly above the September 2013 high.

But this won’t be smooth sailing and there’s significant resistance ahead.  Please take a look at the UCO weekly chart:

UCO weekly

The 200-week SMA acted as resistance back in August and September of last year and that sent UCO lower, but higher lows than in April 2013.

So how can you trade UCO?  I’d be a buyer on pullbacks to the 20-day EMA, currently around 33.79.  If you buy and UCO stalls at the 200-week SMA, currently around 37.15, consider selling.  That should give you about a 10% gain.  If it closes above this weekly SMA, consider holding your shares but make sure it’s a “good” close above the moving average and not just a by few ticks – look at what happened in September: the SMA was 39.41 and the weekly close was 39.61.  The next week UCO closed lower and the following week took a sharp dive.

So will there by any upside follow-through tomorrow or was today a last gasp for the bulls?  The answer to that question is something we will know, in the fullness of time.

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4.7.14 – Will Ugly Get Uglier?

The S&P 500 posting its biggest three-day drop in two months as winners from last year are being thrown out with the bathwater.  The Dow Industrials lost another 166 points to close at 16,235.87.  The S%P 500 Index fell 1.08% and the Nasdaq Composite was off 1.16%.  The action in the Midcap Index was brutal, losing 1.69%.

Things are sunnier in Latin America – LBJ, the 3x leveraged Latin America Bull ETF, advanced 5.88%.  Maybe it’s because they’re wired from drinking too much coffee?  JO, the coffee ETN, gapped open higher and closed with a 5.11% gain.  SRTY, the leveraged short Russell 2000 Index ETF, was up 4.39%.  DUG, the leveraged short oil & gas ETF, rose 2.99%.  Please click on the symbols for details.

My timing for choosing days not to post the blog really sucks.  Both Wednesday and Thursday of last week the composite long index I created back in 2010 pushed into overbought territory.  I developed the composite indexes, both long and short, using High Growth Stock Investor software.  The long composite combines the following non-leveraged, index ETF’s:

EFA – Msci Eafe; EEM – MSCI Emerging; IWM – Russell 2000; IJR – Small Cap 600; QQQ – Nasdaq-100; MDY – Midcap 400; and SPY – S&P 500.

I created the short composite by combining the following non-leveraged, short index ETF’s:

EFZ – short Msci Eafe; EUM – short Msci Emerging Markets; RWM – short Russell 2000; SBB – short Smallcap 600; PSQ – Short QQQ; MYY – short Midcap 400; and SH – short S&P 500.

The +/-2 standard deviation bands typically applied in a Bollinger Band includes 95% of all the data while +/-3 standard deviation bands includes 98% of all the data.  The price bars in the long composite chart below are flanked by 2 standard deviation (blue solid lines) and 3 standard deviation (red dashed lines) Bollinger Bands.  The green line is a 4-day SMA.  The data in this chart is as of Friday’s close:

Long ETF

The red down arrows point to Wednesday’s and Thursday’s action.  The long black candlestick is Friday.  I’m not seeing any signs that the selling is exhausted, either, although a bounce from here would not be unexpected.  The VIX (the CBOE Options Volatility Index) is far from overbought.  The chart below shows it bounced off its lower Bollinger Band on Friday and is about halfway between the mid-band and the upper Bollinger Band:

VIX-SPYToday’s bar is outlined in the yellow ellipse.

There are a variety of ETF alternatives you can take to make money in this market.  The first is actually not an ETF – it’s to stay in cash.  Cash is a position.  The second is if you think the market will continue to drop, Treasury bonds should act as a safe haven.  An easy way to buy bonds in an ETF is to buy TLT, the 20+ year Treasury Bond ETF.  Back in mid-January it gave a buy signal using Dave Landry’s Bow-Tie pattern.  Is it too late to buy here?  Or is it just getting started?  That’s not for me to say but it’s an idea you can explore.

Another alternative if you think the market will keep dropping is to buy one of the ETF’s that go up when volatility (VIX) increases, such as VXX, the VIX short-term futures ETN, or VXZ, the VIX mid-term futures ETN.  Think the selling is overdone and volatility will decrease as the market rises?  Then you want to look at XIV, the inverse VIX short-term ETN, or SVXY, the inverse VIX short-term ETF.

A fourth alternative is to look for ETF’s that have been unfazed by the sell-off, like PFF, the U.S. Preferred Stock Index ETF.  It was down fractionally today and is up 5.65% for the year.

Sell-offs like we’re having no are no fun but they do knock some of the froth out of the market.  With the Nasdaq-100 Index and Russell 2000 Index well below their 50-day SMAs; and the S&P Index just above its 50-day SMA; it’s time to protect your capital so you can play the game another day.  Use throwbacks from here as an opportunity to scale out of positions and/or load up for the next thrust lower.  But get ready to load the truck up if the QQQ pulls back to its 20-month EMA, around 77.50.

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4.4.14 – Blog WIll Resume Monday

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4.3.14 – Gone Fishin’

Stock indexes closed slightly lower as traders sit and wait for tomorrow’s job report.  The Dow Industrials were unchanged (well…they really lost 45 cents) while the S&P 500 Index slipped .11%.  The Nasdaq Composite was hit much harder, falling .91%.  Oil closed higher but silver was off sharply.

SRTY, the leveraged short Russell 2000 ETF, rose 2.93%.  Nothing to get excited about because it’s still below both its 50- and 200-day SMAs.  GAZ, the natural gas ETN, rose another 2.42%.  Please click on the symbols for details.

The lack of movement today means I’m still not seeing much in the way of swing trade opportunities.  That’s the way it is sometimes.  What I like to do when the market is quiet is to fish for the industry groups outperforming others since the last market pullback, and then see if there are ETFs to match those groups.  This is easy to do with a data-mining application like High Growth Stock Investor.  HGSI categorizes stocks into 150 industry groups.

The last significant pullback in the S&P 500 Index was from mid-January to early February when the index retreated 6%.  That was about seven weeks ago.  Using HGSI I went to the ranking module options and set the lookback period (percent change) to 7 weeks.  In seconds HGSI ranked the groups by performance from greatest change to least change over the past seven weeks, and assigns a rank of 1 to 99, where 1 is worst performing and 99 is best performing:

HGSI lookback

Here are the top 15 performing groups in the seven weeks ending yesterday:

HGSI group rank1

It’s difficult finding a pure electronics components ETF because these type of stocks are usually held in ETFs that own both software-oriented tech companies and hardware-oriented companies.  With the Department Store index it’s much easier to find a corresponding ETF – XRT, the retail SPDR, with a group rank of 99, the highest rank.

The chart of XRT looks strong and has both a daily and weekly Bongo Green.  The data is through yesterday:


The moving average lines on the chart are 17-day SMA (gray), 50-day SMA (red) and 200-day SMA (blue).  Below is volume with a 50-day moving average of volume line.  At the top of the chart are ribbons for Daily and Weekly Bongos.

Daily and Weekly what?

Developed by a team of High Growth Stock Investor users, the Bongo describes a relationship between three Wells Wilder’s Relative Strength Indicators (8, 14, and 19 day or week) and a 9 period moving average. When the short term RSI (8-Period) has a greater value the medium term RSI (14-Period), and the medium term RSI has a greater value than the long term RSI (19-Period), and the closing price is above the 9-period SMA, then the Bongo Daily is “Yes” and its ribbon color is Green. If the inverse is true, it is “No” and its ribbon color is Red. “Yes” has bullish implications while “No” has bearish implications.

The weekly Bongo works the same way as the daily but the reading is taken following the last close of the week, rather than the end of each day. The weekly indicator has intermediate term implications usually lasting weeks if not longer. Divergences between daily and weekly Bongo can be an indication of a potential price reversal.  Backtesting showed somewhat better results taking Bongo Weekly signals rather than Daily signals but in a strongly trending market, the Daily signal will get you in and out sooner.

When the Daily Bongo is Red and the Weekly Bongo is Green, you have a short-term pullback within a longer-term uptrend.  We saw this last week as XRT pulled back to and held at its 200-day SMA.  The Daily Bongo turned from Red to Green on Tuesday’s close, April 1, and had you gone long on the open yesterday you would have made 1.5% that day.  XRT pulled back .28% today.

Well, that wraps it up for me this week.  I wonder what wild and wacky things will happen over the weekend that roil the markets on Monday?  The answer to that question is something we will know, in the fullness of time.

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4.2.14 – All Clear?

Did the All Clear siren sound off?   The S&P 500 Index closed at a new high and the Dow Industrials just a few points shy of a new high.  The former gained .29% while the latter rose 40 points to close at 16,573.00.  The Nasdaq Composite was up .20%.  Data showing companies added to payrolls last month fueled optimism that the economy is slowly building momentum.  Both gold and silver closed higher and Treasury Bond yields are rising.

GDXJ, the junior gold miners ETF, was up 5.47%.  GAZ, the natural gas ETN, wafted higher by 2.48%.  Please click on the symbol for details.

I’m not finding any swing trade setups that I like.  Those that caught my eye have historic low-probability Win-Loss ratios so I’m passing on them.  But longer-term I am seeing signs of an improving economy and that bodes well for the stock market.  As long-time readers know, I follow weekly rail traffic reports as a proxy for the economy.  If rail carloads are up then that means more goods and raw materials are being consumed and/or used, which means companies are producing/selling more and hopefully, making more money.  That should translate into increased earnings which ultimately should mean higher stock prices.

Car loadings are broken down into ten groups plus intermodal containers.  Intermodal containers are standardized reusable steel boxes used for the safe, efficient and secure storage and movement of materials and products within a global containerized intermodal freight transport system.  They can be moved from truck, to train, to container ship and vice versa.  Here is what they look like being carried on a freight train:

Z train stacks-0007

The groups are as follows:


For the week ending March 22, 2014 there were 291,525 total U.S. carloads excluding intermodal unit, up 4.5% compared with the same week last year.  All but one of the ten non-intermodal groups had higher carloadings than this week last year.  Intermodal units were up 10.6% compared to the same week last year, and total traffic was up 7.73%:

AAR2The data and charts come from the Association of American Railroads web site.

Although there is no railroad-only ETF the easiest way to play the rails, and by proxy, an improving economy, is through IYT, the Dow Jones Transportation Index ETF.  IYT closed today at both a new high and a new closing high.  The daily Volume Zone Oscillator and Price Zone Oscillator, both developed by my friend Walid Khalil, are looking bullish, with IYT’s price above the 60-day EMA and the oscillators themselves above +15 and rising.

The stock market has now risen four consecutive days so there will likely be a pullback in the next day or two.  How deep this pullback is, as well as its volume characteristics, will help us determine whether the new highs in the indexes are the real deal or was this a false breakout.  The answer to that question is something we will know, in the fullness of time.

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4.1.14 – Blog Will Resume Tomorrow

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