The reaction to the Producer Price Index (PPI) this morning was muted, but premarket movement brought SPY above yesterday’s high. Markets continued to rally after the open, and SPY closed above my 539 level from last night’s briefing.
VIX
The VIX fell throughout the day and settled right at the wedge from the most recent breakout. Tomorrow, after the Consumer Price Index (CPI) is released, we’ll see if the VIX finds support or continues to fall. As I mentioned last night, I’d like to see the VIX stay above 17.50 if selling is going to continue. If not, a retest of the highs is a definite possibility.
RRP: What it means for traders
Interestingly, the Reverse Repurchase Agreements (RRP) saw a significant drain from August 1 through August 6, taking it below recent lows. I’ve noticed some traders relying on this information recently to predict market rallies or recoveries. I don’t choose to utilize RRP for trades, but it’s something worth being aware of.
I’ll write a more detailed post on RRP in the future, but the important thing is that when RRP goes down, there’s more liquidity available to go into the market. You might hear this referred to as “shadow liquidity” in trading circles.
SPY’s technical analysis
Since the initial rally from November of last year, SPY has shed many technicals in favor of a continuous melt-up. For example, overbought conditions, particularly on the Money Flow Indicator (MFI), haven’t mattered. We saw this twice before the close: once at 1:50 pm EST and again at 3:25.
On the one-hour chart, SPY hit overbought at 11:30 right at resistance but continued to melt up into the close. 
Challenging conditions
These conditions make trading difficult, especially with a strong set of rules. It’s one of the reasons I’ve not been actively trading in the last few months. Historically, this is the time I start shorting hard, but with the nine-month rally we’ve recently experienced, I have learned to cut my losses quicker and look for a better entry. If the market continues melting up tomorrow, my next target will be a retest of the uptrend before trying to short again.