Reading the VIX - February 2013

One way to look at the VIX is to compare it to the SandP 500 index.  We can do this by graphing a ratio of $SPX and $VIX ($SPX:$VIX).  If VIX is 12 and SPX is 1200 then the ratio would be 100.  Here is the ratio charted:

When the ratio is below 80 we should consider the market oversold and look to buy (see green arrows). When the ratio is over 105 we should consider the market over bought and consider taking profits (see red arrows). Adjustments of buy/sell levels may require adjustments over time as the ratios adjust to different channel levels.