The VIX measures the volatility of index option prices listed on the CBOE. Like the put/call ratio, it is a measure of investor sentiment. In the rare cases when the VIX moves above 45, it reflects major angst in the market, indicating an advantageous buying juncture; At times when it drops beneath certain levels, it indicates complacency.
Yesterday, Gary B. Smith ran this graphic on RealMoney, and I agree with his perspective:
The Volatility Index is often called the fear indicator; When investors are nervous, they often hedge their positions through option buying; When they are too complacent, they ignore hedging alternatives.
Click on chart for larger image . . . Source:Stockcharts.com
Look to buy peaks above 50; When the VIX drops below the 18-20 range, it suggests a complacent market due for a reversal.