The way the VIX is trading now is completely different than what has occurred over the past 18 months. This is a very important signal from a sentiment basis, if you can understand what is actually going on here.
What is the VIX
There's no voodoo, there's no tea leaves here-- the VIX simply measures the supply and demand for $SPX options on a 30-day basis. It does this by taking the current premiums (extrinsic value) of SPX options and doing some fancy statistical calculations to give us the reading.
Because the VIX is a measure of options demand for both calls and puts, that means it takes the "directionality" out of the reading. And because the supply/demand characteristics are different than stocks, textbook technical analysis doesn't work like most people think. It requires an understanding of how the options market works, and a little nuance.
The VIX Narrative
Over the past 18 months, anytime we've seen a drawdown in the markets, the VIX spiked super high and investors overreact, anticipating further downside movement. On top of that, any strong upside move in the markets was met with skepticism that the rally would last.
The skepticism now has flipped on its head. Over the past few weeks, we've seen significant weakness in equities-- no real capitulation, but just steady liquidation. The VIX, in turn, has responded with not a spike but with significant supply on the options market. That means investors are selling premium into this drawdown, as they are skeptical of any further near term downside.
This is a significant shift in sentiment in the options market. We could attribute it to how being a net buyer of puts has not worked out well and there could be fatigue setting in, or the bias of the options market is running counter to the sentiment we've seen in the AAII readings.
So imagine you're a put seller into this drawdown. What happens if we head further, or there is actual news-based reaction to the downside? Either you cover to close your position, or you short stock to hedge, or you buy puts to spread your position. Either way, that would provide demand in the VIX, and we'd see a forced spike in the VIX. That, in my opinion, would be a much better time to sell a ton of premium.