In short…probably not. The VIX hit a 52 week low on Friday and inversely the SPY hit a 52 week high. This should be expected because of the nature of the VIX and option pricing. It is interesting to note however that we may be getting close to historic lows, which are immensely interesting.
The VIX made a low of just about $10 in 1994. The index tested this low again back in 1996 too and respected it. This was just a few years before the Asian crisis and the explosion of LTCM. The VIX then trended between about $17 to $30 during 1999 until early 2001. Enron and the iraq war brought the VIX back up to LTCM highs, but then eventually retreated back to the aforementioned $10 level in mid-2005. The $10 level held a few times during the 2006/2007 housing bubble complacency era..then exploded to all-time highs.
There are a few take always from this historical exercise. The VIX obviously hits its low during times of extreme bullishness and complacency, but that does not make it a raging ‘buy.’ One would go broke buying out of the money (OTM) calls on the VIX every time it hit the $10 level. The VIX takes time to level out. During this time, the next bubble or crisis is brewing.
For us now, this is potentially the Japan debt crisis (as Kyle Bass so eloquently explains), or maybe the consequences of QE…who knows. The only thing traders do know is that the VIX has respected the $10 level historically, and after some time muddling around this level… something hits. Perhaps the best thing traders could do is sit still and remove themselves from the market in order to take a fresh look at things and avoid the confirmation bias.