VIX – Does it really indicate the future direction of stock market?

Investors and stock market pundits mention that VIX (Volatility Index) of the stock market index is low or normal so market will continue to rise and vice versa whenever they predict about the market direction. 

Generally, when VIX of a particular stock index is low or within normal range as we can see from the above chart of India VIX, then it is said that market is healthy and will continue to go up.  Inversely if VIX goes up and continues to rise then it’s said that market may correct or go down as it is the indicator of market volatility.

But I would like to differ with this theory. Look at the chart above and see red marked arrow indicating VIX of Feb 2020 (just before historical market crash in March 2020) at around 20 which is low and normal. But just after that in March 2020, stock market suddenly crashed because of COVID and VIX shot up above 50. So what I would like to tell is that don’t be complacent about the market direction by looking at VIX number as currently also markets are overbought and overheated and trading at crazy valuations and so for any small trigger or event also markets can correct sharply without giving any indication. So VIX is not lead indicator in my view and markets are ripe for significant correction‼️

                                                           VIX (Volatility Index)