Hulbert: VIX as a timing tool

Mark Hulbert has a Marketwatch article (link) about using VIX to time the stock market.

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Consider a hypothetical portfolio that switched in and out of the Wilshire 5000 index according to whether the VIX was above or below 20 — investing in the market on a given day if the VIX closed the previous session below that level, and otherwise staying in cash. This portfolio would have produced an 8.9% annualized return since 1990, when the CBOE’s data for the VIX commence, in contrast to 8.5% for buying and holding. (I chose 20 as the threshold level for illustration purposes only; it is not far from VIX’s median level over the last two decades.)
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As always, backtesting and curve fitting is easier when a person knows what has already happened. Sidestepping much of the 2008 decline is where this timing tool likely makes the bulk of its advantage. Still, it is another possible tool to use, like the 200 day simple moving average, one that has proven to be useful.

An interesting strategy going forward would be to do the opposite, buy on the sell signals given by VIX 20 or the 200 DMA crossovers. Why would anyone do that? Because when an indicator becomes too popular, gets a lot of press, it often starts to fail. I'm not saying I'm going to do that, but it is worth a thought. From the late night bull session a few nights ago, my young relative mentioned he watched the financial news much of the day. I told him that its best use might to use it as a contrary indicator when certain commentators "guaranteed" certain outcomes, to go opposite.