I hadn’t come across this idea before, its a few years old but interesting.
PE/VIX = market emotion: lately drifting in and out of complacency
We define 5 categories of market emotion gauged by PE/VIX:
1) Crash – very high VIX and low PE,
2) Skeptical/Denial – VIX elevated and PE still low,
3) Realistic/Disciplined – Both PE and VIX within normal ranges,
4) Complacency – low VIX or high PE or both,
5) Mania – very high PE and low VIX.