Shanghai Index is below 200MA @ 2529 and we have a gap that will be filled – another 120 pts to move higher.

Here is the reason why :….

China cut the amount of cash that banks must set aside as reserves for the second time in three months to spur lending as Europe's debt crisis curbs exports and the housing market cools.Reserve ratios will fall 50 basis points, effective Feb. 24, the People's Bank of China said on its website yesterday evening. The level for the nation's largest lenders will decline to 20.5 percent, based on previous statements.

China follows Japan in expanding monetary easing even as global equity markets are buoyed by signs of strength in the U.S. economy and optimism that Europe's fiscal crisis will be contained. Governor Zhou Xiaochuan's officials moved on the same day that a report showed home prices slid in most of the nation's biggest cities in January.

'Chinese policy makers are very much concerned about a possible deeper slowdown in domestic growth,' said Yao Wei, a Hong Kong-based economist with Societe Generale SA.

A 50 basis-point cut may add 400 billion yuan ($63 billion) to the financial system, Australia & New Zealand Banking Group Ltd. (ANZ) estimates. UBS AG says 350 billion yuan. The previous reduction was the first since the global financial crisis.

Note that all this kind of liquidity will eventually flow back to the Shanghai stock market.