Bear market exchange traded funds (ETFs) can provide good portfolio protection. Used as a hedge for long-term investors or for short-term profit potential if equity markets decline, there are funds to offer shelter if markets bottom out.

One of the best indicators of potential economic weakness is the banks. The financial sector is a leading indicator of what equity markets are doing. The Market Oracle points out that U.S. and Canadian banks have been in a downslide of 20%-30%. Made up of 229 major banks around the world, the iShares S&P Global Financial ETF (IXG) is in a free-fall moving into this year. This could imply that downward pressure is likely during the first quarter 2008.

For protection, investors can wait the movement out, go to defensive stocks or transfer to bonds. The Short DOW 30 ProShares (DOG) or the UltraShort DOW 30 ETF (DXD) move in the opposite direction of the markets and could provide a cushion.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.