Market Insider

Santelli: Don't let the crowd fool you into following the low VIX

VSandsPhoto | Getty Images

It may not be a good idea to follow trends, said Rick Santelli on CNBC's Squawk Alley, because when traders do the same thing it rarely ends well.

As the CBOE Volatility Index, or VIX, approaches a new quarter-century low, Santelli warned investors against the assumed wisdom of the crowd.

"Think about when markets were completely preoccupied with issues like Y2k," Santelli said on the Santelli Exchange today. "We always see that markets gravitate and everybody jumps on board."

The VIX, Santelli cautioned, is just an indicator and should not be an investor's focus. Large, "tunnel vision" issues then become triggers: Although computers can create very large and very liquid trunks to trade from, it won't move because "many people are going to hit the buttons on their keyboards and do the same thing."

The end result?

"Big chaos and big volatile moves," exacerbated because unlike in the past, the algorithms built to monitor the market are faster than human traders, he said.

Avoid the crowds, Santelli said. "The end result is a market that isn't moving because everybody wants to do the same thing."