Things have started shifting lower in Japan’s Nikkei 225 market index following the lower low formed on Monday at 38,174. This has potentially paved the way for a mean reversion setup on the H4 chart.

Mean Reversion?

With price recently testing the lower Bollinger Band (modified to three standard deviations) at 38,217 and the Relative Strength Index (RSI) within close proximity of reaching oversold space (testing levels not seen since early September this year), a mean reversion play could unfold.

This means buyers could step in at current levels and pull the Index back to at least the 20-period simple moving average at 38,996 (the central value for the Bollinger Band indicator). Further buying may also push the index to surpass said central value and target the Ichimoku Cloud (a widely followed resistance area constructed from the Leading Span B at 39,223 [light orange] and the Leading Span A at 38,768 [light green]).

Price Direction?

Given current chart studies on the H4 timeframe, a mean reversion move could be seen from the lower Bollinger Band to at least the Bollinger Band’s central value.

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