Low VIX Doesn't Mean High Gains

We last posted here in February on the topic of euphoria, or at the very least excessive complacency. The S&P 500 was about 2330 and the Dow about 20,500 at the time. Both indices are about 2.5% higher today, and the headlines du jour concern the record-low readings we are seeing in the VIX -- the "fear index," which measures market expectations for volatility on a forward-looking 30-day basis. The VIX is something that gets mentioned a lot at extremes, both low and high.

It is common for the VIX to rise above 20 when the market is in the midst of a typical correction. A reading of 30 or higher implies a great deal of uncertainty, and therefore rising option premiums on the S&P 500. Once you get into the 40+ range, it's safe to assume we are closing in on the bottom of a massive correction. For some context, we got into the 80s in October 2008 and the VIX remained above 40 until April 2009. We all remember what was happening then.......551 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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