The VIX Level Of 20 And Its Continual Significance

In yesterday's post ("Notable Technical And Sentiment Extremes In The Stock Market") I mentioned the VIX level of 20 and its significance.

I first wrote of the VIX level of 20 as an important demarcation in the discussions of the VIX in 2009.  It continues to be an important level, serving both as technical support and resistance.  In addition, when one views the VIX compared to the stock market (S&P500) over the last few years, one might conclude that a VIX level under 20 signifies investor overconfidence and/or complacency, as the stock market has often reacted in a sharply negative manner after sustained VIX advances above the 20 level.

Below is a chart displaying the VIX, in red, on a LOG scale, 10-year daily basis through yesterday's close of 17.76.  Below the VIX is the S&P500 :

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1344.66 as this post is written