The VIX Index: Buy When High, Go When Low
This is an older article, but it's relevence is timely here:
http://seekingalpha.com/article/35391-the-...igh-go-when-low
The VIX is the implied volatility on the S&P 500 index options for the next 30 days. The VIX is most often used to gauge market sentiment (fear and greed).
At times when investors are worried that the stock market will go down or are trying to prevent further losses, people will buy puts. When demand for puts outpaces supply, prices of puts go up. When prices of options go up, implied volatility goes up. This in turn is reflected as an increase in the VIX index.
In contrast, when market participants do not fear the market heading downward, people will refrain from buying puts. Less demand, lower prices, lower VIX index.
At times when everyone is bearish, high VIX index, these make good times to buy stocks. The reasoning being that if everyone is bearish, there is no one else to sell. No sellers, no more downward pressure on stocks. A visual picture of the inverse relationship between the VIX and price shows this concept well: VIX Index.
Likewise, when everyone is bullish, the VIX index is low; these times are excellent points to exit long stock positions. Logically, if everyone is bullish, then there is no one else to buy. With no buyers, there is no more upward pressure on stocks.
In summary, the VIX is a great contrary indicator. When the VIX is high, it's time to buy, when the VIX is low, it's time to go.