The markets failed to deal with the financial downgrades among other issues yesterday leaving me leaning to the downside short term. What does this mean? From my perspective everything is setting up for a test of the March lows. While my preference is for the broad market to move higher, the negative data is building against the upside. Of all the data yesterday inflation remains my primary concern for now. Yes the financials have more to write off and more to deal with to get the acts together, but I find it interesting that investors are surprised by this. Looking at the housing sector the bottom took nearly two years to establish and there could still be trouble. Financials are 11 months into their confessions of past sins so I expect more.

Where does this leave us? Looking at the short side of the market. Proshares Utlrashort ETFs provide you plenty of options. Scanning through these ETFs, (AMEX: DOG), ultrashort Dow broke higher off a double bottom which is bullish for being short the index. Similarly (AMEX: SDS), ultrashort S&P 500 is showing a bullish break higher as well. (AMEX: QID), ultrashort (NSDQ: QQQQ) is breaking out of a six week base to the upside. These three major index short funds are confirming the weakness in the major markets. Unfortunately this is where we have to look short term.

Scanning through the ten major indexes of the S&P 500 you find similar activity in consumer goods, healthcare, industrials and telecom. Look at the charts on each of these and you will find breaks in support and pressure building to the downside short term, which for these short funds is upward momentum. Make sure if you play these you need to take into account the risk of each and make sure they fit into your discipline of investing. Most important be sure to use stops in the event the markets move opposite of the anticipated direction.