I read an article in the San Diego Union Tribune yesterday about what a good thing it is that the VIX is dropping way down. This person went further to say that is what the rally needs to continue.
When I was younger this type of thing would have sent me through the roof. I really don't like it when stupid people are consulted as experts. It is possible that this person just may have never studied the VIX or did not have any understanding of what it really tells us. However, he is supposed to be an expert isn't he so shouldn't he know of what he speaks?
I am not an expert on the VIX, but what I am is somebody who has studied in detail how to use it to trade the SP 500. A shift to a relatively low reading is a warning sign of an impending decline. Conversely, a sharp spike up is the opposite, an indication of a coming rally.
This is the final piece we need to start looking aggressively for sell signals. This tells us there is complacency in the markets, and that there is a lack of an overall worry of a decline. There are alot of lines on this chart which are moving averages of the VIX and then moving averages plus or minus 15% of themselves. You can see where the RED arrow is yesterday that when we close below the line that is 15% less than the 10 day moving average, it is a sell signal for the stock market. This generally is good for the next couple of days. In this case I would like to see the RSI of VIX get under 5, that would be a greenlight special to short this sucker.
Oh wait, I am wrong, the expert says I should commit more money to the market right at a point where all the pros are shorting it......... At the very least do not add exposure to the market here and take some off the table if you have made some money since March.