Low market volatility—a plus or storm ahead?

The last couple of weeks have brought a new sense of calm, almost complacency, as we moved through earnings season with little damage to the broader market. Does this new sense of calm mean smooth sailing ahead or is it just the calm before the storm?

We have been talking a lot about the Volatility Index (VIX) as it hovers at multiyear lows, closing Wednesday at 11.68. This begs the question: Is that a bad thing? Does that mean that investors/traders are fairly complacent with the status quo or is it a sign of overconfidence that is warning of a correction ahead?

The answer to both questions is that the VIX—by itself—is not really giving us a lot of information. In a bull market, the VIX can stay low for quite a while as investors/traders remain unfazed by broader geo-political issues and focus on nothing but the economy.

The action of late suggests that the many feel the economy is doing just fine. If there are real concerns, they are not presenting themselves in this index. As long as investors/traders are not concerned, the broader market can continue to move slowly and steadily higher. On the other hand, that does not mean it can't go down—it just means that the expectation is that any move lower will not be a complete rout.

It is important to focus on short-term expected volatility and long-term versus short-term expectations. These are important concepts to understand because it will affect how investors/traders perceive the markets. This is where the VIX can be helpful.

Read More Does the VIX fully reflect fear in the market?

The VIX is essentially an annualized estimate of short-term price volatility for the S&P 500 over the course of the next 30 days. As of Friday's close, the VIX was at the lowest level since March 2013, and that means that traders expect volatility of plus or minus 3.3 percent over the next 30 days. However, it is really important to understand that this expectation is not for at least 3.3 percent or exactly 3.35 percent, but that volatility won't be MORE than 3.3 percent.

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Its cousin, the VXV, measures annualized volatility expectations over a three-month period, and on Friday that index closed at 13.62, which would imply a volatility expectation of plus or minus 4 percent over the next quarter—very much in line with the shorter-term VIX expectation. So even three months out, investors are NOT expecting any major trauma such as that 15-plus percent correction that so many strategists tell us is coming.

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Now with Memorial Day behind us, summer is in full swing and typically volumes tend to dry up, so we could see both these indexes move lower as investors/traders get more comfortable with the economy, Fed withdrawal and global central bank policies. Geo-politically there is no shortage of crises, yet both of these measures have discounted the impact as investors/traders do not expect any of these to derail global markets.

Look, we have been saying for a while now that the market is overvalued based upon the economy and all of the Fed stimulus, yet it moves higher as investors get more comfortable with the state of affairs—which could end up being the very reason that this summer may prove to be an opportunity as this complacency causes some to take excessive risk. A declining VIX in itself is not a bad thing, in fact, it signals stability over the long term, but it also tends to cause complacency and that is what will kick you in the head when the unexpected happens.

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Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at kennypolcari.com.

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.