It’s significant that Steven Sears even felt the need to write this column in the first place; it’s even more significant that he actually published it, and said today:

[A]ll it took was some bad inflation data Tuesday, and a few crummy earnings report, for the Chicago Board Options Exchange’s Market Volatility Index (VIX) to jump up about 6%, to almost 18.

If this number seems random to you, guess what? It is. Investors need to fight the temptation to view VIX as the end all, be all, in the options market. [link; our emphasis]

Indeed. While the VIX isn’t actually a random number, it certainly is just a statistic, and that means many of the traditional tools of analysis simply won’t apply. And the VIX has definitely received too much attention of late, and is being asked to perform too many roles - market timer, sentiment indicator, and even trading vehicle.

The real question now is: has the VIX jumped the shark? Try as we might, it’s getting harder and harder to find a source whose daily market commentary doesn’t feature at least a casual nod to VIX action, and more importantly, those passing references almost always describe it one-dimensionally as “the fear index.” A Google Trends analysis suggests that the VIX has become a permanent fixture in both financial journalism and among the terms for which punters like us regularly search (the attached chart is US-only; there’s some unrelated Japanese term that skews the global results). The ubiquity of the VIX is as recent as early 2008: while spikes in searches and in news coverage matched spikes in the index itself during 2007, what we’re seeing now is a fairly steady stream of stories and searches even during a market rally. This may mark a fundamental shift, in that the story used to be, “market selloff = VIX spike = people are scared!” but is now “hey, look how low the VIX is going!”

Nous sommes tous VIX-watchers.