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"So be sure when you step. Step with care and great tact. And remember that Life's a great balancing act." -- Dr. Seuss

The market has gone back to its Bullish ways, resuming the upward trajectory that has been effectively going on for most of the year, as represented by the 13% gain to date of the S&P 500 Index (SPX).

An anticipated correction looked like it might go into effect mid-April, with the Boston Marathon bombings serving as the catalyst. Yet the Bulls righted their ship with surprising haste, while the Bears have found themselves mainly back on their posteriors since that brutal event unfolded.

The market's upbeat sentiment was revealed last week in the major indices' bottom lines, as the Dow Jones Industrial Average (DJIA) ended up gaining 1.8% on the week, while the SPX added 2.0%. Meanwhile, the tech-laden Nasdaq Composite Index (COMP) continued on its recent tear, once again outperforming both the SPX and the Dow. The COMP ended up with a gain of 3% over the same time period.

As reflected in last week's market performance, investors seem to be sticking to the majority POV that, generally speaking, the fair-to-middling Q1 corporate earnings numbers that have emerged over the last several weeks have managed to trump the ongoing mediocre domestic economy data, such as last week's combination of decent jobs numbers being somewhat muted by poor factory orders data.

The current upbeat perspective has, no doubt, been heartily maintained as a response to the ongoing promise from the Fed that its overworked printing press will not downshift any time real soon.

At this point in time, close to 80% of the S&P 500 companies have already reporting earnings. So even if the remaining batch of earnings reports proves to be slightly more negative than expected, they still might not impact the market in a meaningful way. Unless, of course, a sudden, collective burst of missed earnings numbers emerge, which in turn could become amplified by a string of negative projections from those same offending corporations.

One number that shouldn't be much of a surprise, however, at least relative to the upward equity trend, is that of the Chicago Board Options Exchange Market Volatility Index (VIX), which was hovering under the 13 mark as of the end of last week. While the VIX, commonly referred to as the "fear gauge, " is not quite hitting its six-year low, as it did about a month ago, it does remain close to the pre-crash levels seen in the first half of 2007.

However, as we've seen as recently as early April of this year, when concern about the fragility of the global recovery reemerged due to signs of economic weakness from both China and the eurozone, the VIX proved its reputation as an accurate metric for volatility, one that is ready to pop on any real or imagined signs of provocation.

And, though it quickly gave up the 30% gains it made over the period of days following the Boston tragedy, the VIX remains an important index to track.

Why?

Well, for one reason, particularly at times of relative calm such as those to be found at moments of record-breaking highs, it should be worth considering as a viable insurance vehicle.

But insurance against what? Well, those things that could undo the sea of calm.

For example, the present version of the Middle East muddle comes to mind.

With Israel flexing its military muscles in the form of the current round of rocket attacks on Syria, the potential for escalation of violence in the region certainly exists. And, though self-interest by Syria, as well as Iran, would hopefully limit the resultant actions to protestations and saber-rattling by all concerned, cooler heads certainly do not always prevail.

In that case, should the level of regional fighting gain traction, market sentiment would quickly shift from risk-on to risk-off, and the VIX would shoot up as quickly as a defensive missile.

The eurozone is another potentially volatile region that is currently relatively calm. Now that hardly means that the nasty sovereign debt crisis has been suitably addressed, as Cyprus so ably served as a reminder. It does, however, mean that the current perception is that the region's structural problems have been checked at the door, and business as usual can continue for the moment, even if that business is a growing regional recession.

Finally, as may be evidenced by the events in Boston, the U.S. certainly has its own potential for volatility over and above that of whatever may be intrinsic to the economy itself.

The point is that the VIX is an explosive index by nature, one that reacts like an emotional thermometer to the underlying factors that constitute the "fear gauge." When the index is at relatively low levels, it remains an opportunity for what may be considered cheap insurance against a jump in fear and investor concern.

And, like car insurance, you hope to never have to cash in on that particular investment. But if you ever do, boy are you glad you had it.

The trick is to know how much insurance to get, and when you are paying too high a premium.

At the moment, with a record-high market and an identifiable number of possible volatile events floating close to the surface, it seems well worth making the effort to figure out the right amount of insurance to cover your own portfolio.

Note: Most traders know that you can't trade the VIX directly. The ETF VXX, while wildly flawed in multiple ways (which will be reviewed in a separate post), remains, at least in terms of its explosive potential to offset a sharp market turn, as a reasonable proxy if you wish to use a VIX derivative as a hedge.

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Daniel Sckolnik or Sabrient. Neither Daniel Sckolnik nor Sabrient makes any representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

Source: VIX May Be Low, But High Volatility Continues To Lurk