I Tested 190 Low-VIX Instances. The Doomers and the Bulls Are Both Wrong.

25 years of data. The VIX at 18 tells you less than you think. Here’s what it actually says.

The VIX is at 18. Half the internet says that means the market is complacent and a crash is imminent. The other half says everything is fine and you should buy more. I ran 190 instances across 25 years. Both sides are wrong.

The VIX measures how many people are buying puts on the S&P 500. When it’s low, fewer people are paying for protection. The doomer argument: low VIX means nobody’s hedging, everyone’s complacent, and the rug pull is coming. You’ve heard this. You’ll hear it again next month.

Here’s what actually happens after the VIX drops below 18.

One week out: 60% of the time the market is up. But the average return is roughly flat because the 40% of down weeks drop a little harder. No edge either direction.

One month out: 64% positive. Average return starts to tilt upward. Getting closer to a real signal but still nothing you’d build a system around.

Six months out: 75% positive. Average gain of about 4%. Even accounting for every VIX spike, every scare, every correction that happened inside those six months, the forward return is solidly positive.

Now here’s the part the “don’t worry about it” crowd ignores. 89% of the time within six months, the VIX spikes back above 18. Some kind of volatility event happens. A war scare. A carry trade unwind. A pandemic. The VIX does spike. It just doesn’t tell you when, how bad, or whether the market recovers quickly.

Both narratives fail the data. Low VIX doesn’t predict a crash. Low VIX also doesn’t mean smooth sailing. It means roughly the same thing as most days in the market: something will happen, you don’t know what, and you need a system that handles both outcomes.

This is exactly why the systems at Stats Edge don’t use VIX level as a directional signal. Price drives the entries. The VIX is context, not a trigger. And the systems have been through every one of those 190 instances, including the ones that produced real drawdowns. When those drawdowns happen, you hear about it in The Drawdown Memo. Not after the fact. During.

The free 25-Year Backtest PDF at https://www.statsedgetrading.com/the-25-year-backtest walks through the regime-testing process behind these numbers. This video is basically pages 2-3 applied to the VIX.

For real-time alerts with entries, stops, and sizing that don’t rely on VIX folklore, that’s Stats Edge Pro at $149/month with a 30-day money-back guarantee.

— Michael Nauss, CMT, CAIA, CDMS