watching the VIX

Many watch for extreme moves in the VIX to try an pinpoint tops and bottoms.  IMO it is not that simple.  They use envelopes:

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2393449&cmd=show[s175637869]&disp=P

Note: I would have time shifted the envelope if it were my chart.

Or, Bollinger Bands:

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2393449&cmd=show[s179178685]&disp=P

Others use VIX VXV ratios (Google VIX VXV signals).

The concept is extreme moves in the VIX can help in spotting tops or bottoms.  Not that complex a concept.  But you don't need envelopes or Bollinger bands to spot extremes.  Any teacher knows about the Bell Curve and how in a normal distribution  2 standard deviations covers either side of the midpoint  about 47.5% of the population (or 95% on both sides of the midpoint).  This is how teachers grade on a curve (figures break points for a grade).  See for yourself: 

So we apply the Bell Curve as a teacher would to a grade (sort of).  Say the VIX is at 15 (a bottom).  95% of 15 is 14.25 - so a move to 29.25 (15 + 14.25) would be an extreme move up.  If the VIX were at 30 (a top) we would use 47.5% of 30 (14.25 points).  A move down from 30 to 15.75 would be an extreme move off the top....

We have just encountered such an extreme move (03/16).  See for yourself:

Now the VIX normally moves inverse to the market (it goes up when the market goes down and it goes down when the market goes up).  So an extreme move up suggests an extreme move down in the market (So we are now on alert for a bottom).

But this alone is not enough to call it a bottom.  We need confirmation of some sort.  I Suggest the best confirmation is market action.   Research suggests to me we need 3-4 consecutive up days to confirm we bottomed and a trend reversal is taking place.

We use mirror image logic for a trend reversal down.  NOTE  - this methodology will not call all reversals, so you will use it in conjunction with other tools, but it is reliable when it does give a signal.

UPDATE 03-21 04:30pm EDT - we got 3 consecutive up days to confirm our VIX signal.  That means the trend should now be up.