I have seen a number of typing heads out there proclaiming that the VIX is “too low” and therefore the recent rally is about to run out of steam. I have my own reasons (yesterday’s VIX:VXV ratio warning sign, for instance) for thinking that the current move is overextended, but labeling the VIX as “too low” is not one of those reasons.
As best as I can determine, most people who use the VIX to time the market focus on the distance between the current VIX value and 10 day simple moving average, with the expectation that the greater the distance between the two, the more likely that the VIX will snap back in the direction of the SMA. With that in mind, consider the chart below, which shows the VIX in the context of the 10 day SMA and two moving average envelopes that show the 10% (dotted green) and 20% (solid green) distance from the SMA. For the last 6 ½ weeks or so, the VIX has been dropping steadily, but in such a fashion that its movements have largely been constrained to a channel between the 10 day SMA and the -10% moving average envelope. At current levels, the VIX is barely 3% below the very same 10 day SMA, hardly what most would consider to be in the “too low” category.