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The VIX index has been declining of late, reflecting higher confidence levels from stock market investors. Since 2010, once the VIX (Fear Index) has reached the 14 to 16 level, the market has been close to a short-term high in prices at (1).

 

 

Currently the VIX hasn't reached the 2010/2011 lows, yet it is edging closer to these levels. A popular investment belief is that "Bottoms are events and Tops are a process." The VIX isn't suggesting that a top is in place at this time. However, it does reflect growing confidence in the markets, and in the past these levels may indicate that we are nearing a time to be cautious on the markets.

When it comes to portfolio construction and risk exposure over the last 2 years, low VIX levels reflected a time to pair back risk exposure.

 

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