SHANGHAI SURPRISE: Waking up and checking out how the Asian markets have fared has always been a ritual of mine, however recently it has become ever more important. With the Shanghai Index in China losing over 20% in the last two weeks and making several huge one-day moves this week, the waking up process has been interesting. The heavy volatility in China began last Wednesday when the Shanghai Index fell by 4.7% and two days later dropped another 3.0%. For the week the index was down 6.6%. China began the week with a bearish tone, falling 5.8% on Monday; Tuesday saw a snapback of 1.4% before the index gave back another 4.3% on Wednesday. Last night China experienced another major swing, this time to the upside to the tune of 4.5% - recouping all of Wednesday’s losses. Heading into the final trading day of the week the Shanghai Index is down 16% in the last 16 days and off 4.4% this week.
THE BOTTOMLINE - PLAYING THE CHINA STOCK MARKET: If the wild swing of the Shanghai Index intrigue you and you are willing to take on above-average risk, I will throw out a few ETF for you to consider. Starting with the extremely popular iShares FTSE/Xinhua China 25 ETF (FXI), this is composed of a basket of 25 Chinese stocks that are traded on US exchanges. The ETF is trading around the $40 level, but could see the $38 area before I would consider it a screaming buy. An interesting way to play China with focus on the small-cap sector versus the large-caps that FXI concentrates on is the Claymore/AlphaShares China Small-Cap ETF (HAO). The ETF has been attracting big money recently as the volume has picked up dramatically. HAO is currently sitting on its 50-day moving average at $22.10 and is oversold on the RSI indicator - offering a high reward-to-risk opportunity.
For the traders that really want to get into the action there are leveraged ETFs that are available for short-term trading. For the bulls there is the ProShares Ultra FTSE/Xinhua China 25 ETF (XPP), which offers a 2-to-1 upside leverage on the index. The ProShares UltraShort FTSE/Xinhua 25 ETF (FXP) is the exact opposite, offering 2-to-1 downside leverage on the index. I caution traders that use leveraged ETFs as they are merely trading vehicles and not ideal for long-term investing. | 
