NEW YORK (TheStreet) -- With volatility comes trading opportunities. That's now the case with Chinese stocks.

China's Shanghai Composite index set its all-time intraday high of 6,124 back in October 2007, in the same month that both the Dow Jones Industrial Average (DIA - Get Report) and S&P 500 (SPY - Get Report) set their highs before the crash of 2008. While the Dow 30 and S&P declined 54.2% and 57.7% to their March 2009 lows, the Shanghai Composite bottomed first, in October 2008, with a low of 1,665 -- down 72.8%.

The volatility of the China bubble and its re-inflation can be traded using the iShares China Large-Cap ETF (FXI - Get Report).

Here's the weekly and daily charts for the Shanghai Composite, followed be the weekly chart for the exchange-traded-fund and its key trading levels.

The weekly chart of the Shanghai Composite shows the crash of 2008 at the far left. The chart shows the Fibonacci Retracement levels, the key weekly moving average and the 200-week simple moving average, which is considered the long-term reversion to the mean.

Note from left to right that the 200-week simple moving average was a magnet between April 2009 and October 2014 before the China bubble began to re-inflate. 

The new bubble has been fueled by the heavy use of margin debt, which reached record levels as the index set a bubble peak of 5,178 on June 12. The possibility of a popping bubble was previously analyzed on June 23. During the height of the Greek debt crisis, on July 7, it appeared that the popping China bubble would be a bigger problem than Greece.

By July 9, after billions of dollars were spent by the Chinese government, the Shanghai Composite formed a tradable bottom of 3,374, holding the 38.2% Fibonacci retracement. There were three technical reasons for a rebound at that time, and the index rebounded 23.9% to a high of 4,184 on July 24. The index had a close of 4,071 on July 24, still in bear market territory and down 21.4%. Monday's close of 3,663 is between the 38.2% retracement of 3,365 and the 50% retracement of 3,891.


Courtesy of MetaStock Xenith

The daily chart of the Shanghai Composite shows the crash of 2015 from the high of 5,178 on June 12 to the low of 3,374 on July 9. The close that day was above the 200-day simple moving average, then at 3,431.

This chart shows the Fibonacci Retracement levels between the June 12 high and the July 9 low. At the close on July 24, the composite was just above the 38.2% retracement of 4,063. The open was below this level on July 27, and the close that day was below the 23.6% retracement of 3,799. At Tuesday's opening low of 3,538, the Shanghai Composite held its 200-day simple moving average of 3,534.

An analysis of key levels on technical charts shows downside risk to 3,152 by the end of 2015.


Courtesy of MetaStock Xenith

Here's the weekly chart for the iShares China Large-Cap ETF.


Courtesy of MetaStock Xenith

The weekly chart of the China ETF shows its crash of 2008 at the far left. The chart shows the Fibonacci Retracement levels, the key weekly moving average and the 200-week simple moving average, which is considered the long-term reversion to the mean.

Note from left to right that the 200-week simple moving average was a magnet between September 2008 and October 2014 before the China bubble re-inflated.

Notice the accuracy of the Fibonacci Retracements as the 50% level of $46.20 was the high end of the trading range between November 2009 and April 2011. Then the 23.6% retracement became the low end of the trading range between September 2011 and July 2013.

The ETF ended Monday with a close of $40.13, down 3.6% Monday and down 24.1% below its April 15 multiyear high of $52.85. The low of $38.88 set on July 8 was above the 200-week simple moving average of $38.30, and this week's low of $39.79 is on the 38.2% retracement of $39.85.

The weekly chart for the China ETF is negative, given a close on Friday, July 31, below the key weekly moving average of $44.15, with a weekly momentum reading projected to decline to 25.64, down from 28.40 on July 24.

Investors looking to buy the China ETF should place a good till canceled limit order to buy the ETF if it drops to $34.99, which is a key level on technical charts until the end of 2015.

Investors looking to reduce holdings should place a good till canceled limit to sell the ETF if it rises to $44.67, which is a key level on technical charts until the end of 2015.

This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.