The Pragmatic Capitalist has a great post about the recent behavior of the VIX:

“The VIX is currently 34% from its 50 day moving average.  In the last two years since the recession began we have seen three other instances  where the VIX traded 30% from its 50 day moving average on the downside.  The first occurred in late September and early October of 2007.   The second occurred in May of 2008.  And the third occurred in mid-December 2008.   All three moves foreshadowed large equity sell-offs.  The first one in September of 2007 marked the top of the market.  The second market an intermediate top in the market after Bear Stearns went down and the third occurred just before the market sell-off in early 2009.

Clearly, three data points is not a comfortable amount of data with which to form a trading strategy, but there is no doubt that the sharp decline in the VIX represents a high level of complacency and comfort in high risk assets.  Considering the quick rise in the equity markets and the questionable underlying fundamentals and we might just be staring at a market that is ripe for a sharp decline.”

Bill Luby in VIX: How Low Can It Go? at SeekingAlpha (5/8/09) ventures that the VIX would not fall below 25-27:

For the record, the lowest 10, 20 or 100 day historical volatility level recorded in the past six months was a 10 day HV of 20.38, which translates into a VIX of 26.69. For anyone looking for the lowest possible extreme in the VIX in the near future, 26 would be a good bet. This is also consistent with my earlier prediction that the VIX is not likely to breach a floor of 25-27.

As of 11:55 Eastern on Wednesday, VIX was trading at 27.75 ish with a low for the day so far of 26.57.  If TPC and Luby are right, we will see a market top just around the corner…how big the correction may be is another question…