Hello Ergo sum, thanks, flattery will get you everywhere:-)
I use the vix as one of my complacency indicators. There are people that are more schooled on the intricacies of the indicator. My start with it was strictly through the charts. For a detailed description on the vix, I would recommend stockcharts.com http://stockcharts.com/education/What/IndicatorAnalysis/indic_VIX.html
I don't want to avoid the question, but want to give you that background first.
So, how do I use it....I don't use it alone and I don't expect the market to swing wildly in reaction to various vix levels. I also don't really care about absolute values. I am more concerned with relative values. the current levels have been where the general market has launched a significant correction for the past 4 to 5 years. It doesn't mean that one is imminent though, it just tells me that I need to be ultra cautious if I am going to play on the bullish side. So, low levels on the VIX generally indicate complacency in the market and complacency is generally found at the tops of the market. Conversely, high vix readings generally indicate fear which is usually associated with a bottom.
You can see on this chart that there is a strong correlation between the VIX and strong moves in the market. Look at March 2000. The readings are down around 20. Then in April it shoots up over 40. I consider the mid 40s to be a good bottom that should be bought. In Sept 2001, we went up over 55. Lots of fear. I can show you posts where I stated that I was buying heavily on margin.
I'll try to throw together a COMP chart that shows the VIX readings at the major tops and bottoms.
BTW, there is an equivalent for the NDX called the VXN. But I pretty much just stick with the VIX for the entire market.
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