A lot of commentary and observations about the VIX have me vexed. About 4 years ago, I stopped watching the VIX on a regular basis so I decided to revisit the whole thing today and see if I was being ignorant of some magical indicator that would tell me there is a decline on the way. Oh that’s right, I’ve been saying that for about 2 months(and been wrong by the way) without even looking at the VIX. I’ll save you the suspense - I don’t believe there is much predictive info in the VIX anymore for the average investor.

It used to be said, “If the VIX is high, it’s time to buy” and “If the VIX is low, it’s time to go.” But in reality, that only was relevant to the true believers in the contrarian camp of which there are so very few. For the majority of the market, the VIX was just a wonderful part of the wall of worry. By the time it was apparently correct, the VIX would reverse course so quickly that you had no time to do anything. After all, the math underlying the VIX is based upon the options market which is about as fast moving as you can get. When the market was decidedly bearish in August to October of 2002, the VIX was around 40 So if you had followed the old rule of thumb, you would have bought - but did most people? Nope. Most people waited until March 2003 to buy heavily and that was when the VIX was at 30 (still high, but not relative to 6 months earlier).

Since the bullish trend in the S&P began, the VIX has declined steadily. Aha!!- you say. This thing is really predictive. But hold on, it was in the 10’s in July of 2005 which is the same level that commentators are obsessing about today - should you have sold back then? Since July of 2005, the market has increased about 15%. Herein lies the danger with the VIX. It’s right some of the time and it’s wrong some of the time. How do you know which one to pick?

In my opinion, the best thing you can do with unreliable indicators is to throw them out altogether so they do not negate the benefits of good ones. I know for certain that if the market declines in the next few weeks while the VIX is about 10, there will be a bunch of new believers in this indicator. I will not be one of them, but I will feel stronger about the other things I use to develop my market bias.