Are negative array indexes allowed in C?

That is correct. From C99 §6.5.2.1/2:

The definition of the subscript operator [] is that E1[E2] is identical to (*((E1)+(E2))).

There's no magic. It's a 1-1 equivalence. As always when dereferencing a pointer (*), you need to be sure it's pointing to a valid address.

Sounds fine to me. It would be a rare case that you would legitimately need it however.

This is only valid if arr is a pointer that points to the second element in an array or a later element. Otherwise, it is not valid, because you would be accessing memory outside the bounds of the array. So, for example, this would be wrong:

int arr[10];

int x = arr[-2]; // invalid; out of range

But this would be okay:

int arr[10];
int* p = &arr[2];

int x = p[-2]; // valid:  accesses arr[0]

It is, however, unusual to use a negative subscript.