NSE Nifty snapped a two-day losing streak on Tuesday led by short covering. The index made a better-than-expected start and moved past the 50-DMA level during the session. However, profit booking in the second half pulled down the index a little, as it finally settled with a gain of 76.40 points or 0.63 per cent at 12,107.90.

The 50-stock pack has halted just below its 50-DMA, which is at 12,120. Also, a potentially bearish candle has formed near the 50-DMA, making this zone a strong resistance. Also, the pullback has come on the back of strong short covering. It would be important to see if this gets replaced with fresh buying at current levels.

Wednesday’s session is likely to see a tentative start, with 12,120 and 12,165 levels acting as resistance. Support may come in at 12,080 and 12,030.

The Relative Strength Index (RSI) on the daily chart was at 51.18 and stayed neutral, showing no divergence against the price. The daily MACD showed a positive crossover, as it traded above its signal line.

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A ‘Shooting Star’ was formed on the charts. Such a formation occurs when an index opens higher, gets stronger, but pare gains to close near lower levels. The fact that such a formation has happened near 50-DMA can potentially be a bearish signal. This would need confirmation on the next session.

Given the present technical setup, Nifty will continue to remain vulnerable at higher levels. Such a technical setup will hold until the index moves past 50-DMA convincingly.

We would recommend traders to protect profits at higher levels instead of chasing the rally. While keeping exposures at modest levels, a cautious view is advised for the day.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)