Last Friday's ugly selloff in the Nasdaq Composite was much like the price and volume action on March 13, as turnover spiked well above the 50-day volume average (although volume inflated last Friday), while the price action formed another bearish engulfing candle after a failed gap up:



Rather than trying to guess if volume would have been lighter without option expiration, we feel it is best to simply accept that volume was heavier and move on. It is tough to give the Nasdaq the benefit of the doubt, especially since the volume pattern has been ugly the past few weeks, with heavy volume down days followed by light volume up days.

Along with the distribution in the Nasdaq Composite, we have seen heavy volume hit the market leading biotech index for several weeks now. After a long advance, last week's break of the 10-week moving average on higher volume in $IBB was a bearish sign. $IBB closed at the lows of the week and below the 10-week MA for the first time since rallying more than 200% off the lows of 2011. $IBB will now need several weeks or more of basing action before it can attempt to push higher:



Transportation ETF ($IYT) remains in decent shape, holding above the 20-day EMA, but a closer look at the volume reveals that the recent breakout was sold into strength. The heavy volume and bearish engulfing action on 3/13 was not a good sign following a breakout to new 52-week highs on average volume:



Since the volume on 3/13 was so big, a break of that candle's low would not be a good sign and most likely lead to a test of the 50-day MA.

Leadership stocks also had a rough go of it last week, which was reflected in our scans (there were virtually no clear buy setups to be found). Many stocks like $AMZN or $PCLN simply have ugly patterns and need a few weeks of rest. Others like $JAZZ and $GILD have broken down and are rolling over.

Not all leadership stocks re ugly, as $TSLA, $INVN, $KORS, $GMCR and a few others are still holding up, but there isn't much to get excited about this week in terms of low risk buy points. That may change by the end of the week, but for now, there simply isn't much to do.

Because of the bearish volume pattern in the Nasdaq and recent weakness in leadership, we enter the new week with a change in our rule-based market timing model. Regular subscribers of The Wagner Daily should note the detailed change to mode of our timing system near the top of today's report.

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.