The market has returned to an uncharacteristically calm state, which has been a good thing for stock prices overall. So far in the first half of 2020, the VIX is back down to 12 and the S&P 500 is already up 2.7%.

But the real action is in the longer-term chart.

Since the volatility product blowup from February 2018 that saw the VIX briefly touch the 50 level, it's been a series of progressively lower spikes all the way to present day.

It's been a nearly perfect straight line down and could be signaling that the next big spike in volatility could be imminent.

Screen Shot 2020-01-16 at 6.50.41 PM

As you can see, there was a nice steady progression of lower highs in the VIX from 2016 to 2018 right up to the point of the volatility implosion that knocked a quick 10% off the S&P 500 in just a couple of weeks.

That same pattern has appeared again. And a VIX of 12 is right around where it started last time.

Ultra-low VIX levels (think around 10-12) is usually the point where bad things often start. Once you get around that range, complacency starts to set in and investors begin to think that daily gains in equity prices are an expectation. Sound anything like today's market?

I look at the chart above and see a market that is at high short-term risk. The S&P 500 is certainly long overdue for a 5-7% pullback. In fact, the S&P 500 hasn't been more than 2% off of its all-time high since way back in early October!

The bulls remain in control here, but this might be a good time to get defensive.

How To Play This In Your Portfolio

You could position your portfolio defensively in any number of ways - Treasuries, gold, utilities. If going that route, I'd recommend something like the iShares U.S. Treasury Bond ETF (GOVT), the SPDR Gold Trust ETF (GLD) or the Vanguard Utilities ETF (VPU).

The more aggressive play would be long volatility ETPs. The two best options would be the iPath S&P 500 VIX Short-Term Futures ETN Series B (VXX) or the ProShares VIX Short-Term Futures ETF (VIXY).

Both of those products should only be considered for short-term holding periods.

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