Be careful now!

VIX, the index for volatility, is also called the fear index. It is a gauge of how calm or fearful general investors are in the markets by measuring the ratio of call vs put options. VIX is generally inversely related to the market direction, i.e. when it is high, the market tends to decline and vise verse. In the last 2 weeks of 2012, VIX jumped to 22 due to the fear of the fiscal cliff. However, as soon as Washington miraculously reached the tax deal on the first day of this year, VIX almost plunged overnight. Within days, it had come down to as low as 13, a 40% decline. As you can see below, VIX is currently at the lowest level not seen in the past 5 years. But each time when VIX reached such a low level, it always jumped back up sooner or later. No exception. February is a seasonally bearish time for stocks, coupled by the coming debt ceiling fight in Washington, I'm afraid it won't bode well with the markets in general. A 10-15% correction of the stock market in the next few weeks is not unthinkable. Such kind of stock plummet often comes without prior warning and often occurs when everyone is happy and bullish. I will be extra careful at the moment. At 1470, S&P 500 may continue to go up a bit but I doubt it will be able to go beyond 1500 without first going down. I would rather miss a few points of upward moment than being caught up in a downturn that could be severe and painful.