Shanghai selling pressure

A sharp fall below zero on 13-week Twiggs Money Flow warns of selling pressure on China’s Shanghai Composite Index. Breach of support at 1950 is likely and would offer a target of 1800*.

* Target calculation: 1950 – ( 2100 – 1950 ) = 1800

Michael Pettis summarizes the four challenges facing China:

1. China is over-reliant on credit to generate growth;
2. Attempts to boost consumption will reverse the long-standing subsidy of new investment;
3. Attempts to resolve excess capacity also slow growth; and
4. Unrecognized bad debt on bank balance sheets mean that growth is overstated.