The CBOE Volatility Index dropped to its lowest level since December 1993 on Tuesday, and history shows it could mark a tremendous buying opportunity for stocks.
According to Brian Stutland of Equity Armor Investments, the so-called fear index has only closed below the 10 level on 24 trading days in history, with 15 of those days occurring in the last three months. Note, a close below 10 on Tuesday would mark the 25th time in history and 16th occurrence in the last three months.
But while Wall Street weighs whether the low volatility reading could signal a top for the markets, Stutland pointed out that it could actually foreshadow the next leg up in the rally.
"When we see [the VIX] this low, we look at the stock market and it has done fairly well," he explained Tuesday on CNBC's "Futures Now." "When we see the VIX trades below 10, usually in the last couple of times [the market has moved about 2 percent higher one month later]."
He also noted that the last time the VIX saw a prolonged period below 10, in November 2006, the S&P 500 rallied 10 percent six months later, and 5 percent one year later.
This suggests to Stutland that Tuesday's drop in the VIX is an "all clear" for investors to buy stocks, even if he doesn't see the index maintaining so low a level. "The fact that VIX closed below 10 more than any other time prior to this year truly means we are in uncharted historical low volatility," he added.
The VIX has traded in a historically low range this year as the major indexes continue to hit record highs.