PLUNGE IN BIOGEN HURTS BIOTECHS -- INFLATIONARY IMPACT OF SURGING COMMODITIES MAY FINALLY BE PULLING LONG-RATES HIGHER

BIOTECH INDEX LOSES 6% ... Biotech stocks were the hardest hit today in a falling market. Chart 1 shows the Biotechnology Index (BTK) falling to a four-month low today and closing well below its 200-day moving average. Its relative strength line has fallen to the lowest level in a year. That also cast a pall over the healthcare sector. The biggest reason for the biotech fall was a plunge in Biogen Idec. Along with its partner, Elan, the two firms suspended sales of their MS drug after a patient died. Both stocks plunged as a result. The ADR of Elan was the biggest percentage loser on the NYSE, while Biogen was the biggest Nasdaq loser. BIIB was also the biggest percentage loser in the S&P 500.

Chart 1

BIOGEN PLUNGES 45% ... The incredible plunge in Biogen Idec is best seen on its weekly bars. Chart 2 shows the stock plunging 30 points today which just about cuts its value in half (-45%). And it did so on huge volume. The weekly bars show that the stock had been close to challenging its 2001 highs in the low to mid 70's. Today's plunge, however, has put the former biotech leader close to its 2003 lows near 30. It's always painful to see a stock plunge like that with little or no warning -- either on its chart or its fundamentals. Given the recent problems in the pharmaceutical area, with stocks like Merck and Pfizer plunging on failed drug tests, it's apparent that healthcare isn't the relatively safe defensive sector that it used to be. I'll try to keep that in mind in any future recommendations. While the plunge in biotechs got the market off to a bad start, it had other problems as well. One was another fall in the dollar and another jump in commodity prices. Another was a big jump in long-term interest rates.

Chart 2

LONG-TERM RATES JUMP TO THREE-MONTH HIGH ... It seems as if the inflationary impact of the recent fall in the dollar -- and the climb in commodity prices to the highest levels in decades -- is finally beginning to pull long-term rates higher. [The dollar dropped again today against most major currencies -- especially the Japanese yen -- while the CRB Index climbed 4.65 points to a 24-year high]. Today's economic reports also showed an uptick in January inflation. As a result, the 10-year T-note yield surged today to the highest level since early December. The yield is now back over its 200-day moving average as well. That puts it in position to challenge the December near 4.40%. A close above that chart barrier would put the yield at the highest level in seven months. An upturn in long-term rates would be coming at a bad time for the market with blue chip averages retesting their old highs -- and the Nasdaq market still in a downtrend.

Chart 3