It's an indicator of sentiment. When investors/speculators pay more (higher P/E) and they hedge less (lower vix) that is a sign of complacency. So when indicator is at an extreme like today, you can use it as a contrarian indicator because every buyer becomes a potential seller. So markets tops when there's a lot of buyers (and people who already bought) and very few sellers (and people who already sold) 7/26/16