Since spiking in the low 30’s the VIX (volatility index) has been on a dash down to the teens.  We are there now, and that has become a red flag.  In previous instances when VIX fell below 15 (even toward 13) that was a sign buyers had exhausted themselves. 

When buyers are done, there is nothing left to do but sell.  But frankly, the smart play is to buy insurance when it is cheap.  Effectively, a low VIX implies option prices are cheap or depressed.  Market players are complacent, and while the VIX stays down stocks can rally, but this may be the first crack in stalling the recent rally.

Does it flag a big correction is on the way?  No it does not, however if history is any guide we have to be ready for some downside action.  For option traders, that will get the underwear tight if we are holding long call positions. 

Price action rules the day always, but indicators such as the VIX will give us some prior warning, much like market breadth.  Market moves these days are swift, decisive, powerful and painful to both sides, so having a little protection (buying index puts as an example) on just in case when option prices are cheap (as they are now) is prudent and smart and will protect your portfolio in case a storm hits unexpectedly.