The VIX has been all the talk of the markets of late and rightly so. The index clearly shows that the market has become extremely complacent, taking a dangerous view that this market cannot go down and will only continue to surge. Because of this, I decided to draw a chart showing what has happened over the last 7 years when the VIX has reached levels similar to today’s. Note that on all occasions when the VIX has fallen, especially to these current levels not seen since 2008, the market has always topped out and reversed.
These extremely low VIX readings confirm that the market has become complacent, lazy and of the mindset that this gravy train will continue to roll on. These are normally sigs that the market is topping out and when we get extreme readings like this, it might be time to look the other way. Note that the market doesn’t instantaneously drop when the VIX does but there is a clear historical pattern here that cannot be ignored. Extremely low readings in the VIX is the major clue that the market is about to reverse and head lower…usually within a few weeks of the VIX registering extreme lows like it has recently.