Do "Increasing Volume" in Short ETFs Really Justify Lower VIX?

Recently there have been several articles that are trying to justify the relatively lower values in VIX with respect to calling market bottoms. One of the biggest reason thrown out there has been the "surging volume" in index ETF shorts. Examples - short ETFs from the Proshares Funds' ETFs - SDS, QID, SH, etc. aka ultrashort S&P, ultrashort QQQ, short S&P, etc. The argument is because these short ETFs are gaining popularity and volume, they are acting as a more known and well embraced hedge against the broader based portfolio. So far so good. But then it goes on to reason that this phenomenon has resulted in panic mitigation in equity stocks, which is what sentiment indicator like VIX tries to measure in a broader manner. Ergo, VIX is not flying at high values that you typically see at Market bottoms especially in the last one year.

I disagree. Why? The facts don't support the popular hypothesis. I went back to the last two intermediate bottoms (Jan 22 and March 17) and compared the volume of several short and ultra short ETFs with the volume in recent days including today when we saw something of a mini spike in VIX earlier in the morning. Let alone being significantly higher, the volume in these ETFs recently has been generally less than the previous two bottoms! I also looked at the average volume to ensure I was not focusing on too short a window and still it wouldn't confirm the fact that the average volume traded has been consistently increasing as compared to Jan and March bottoms.

Well a picture speaks a thousand words. So lets take the example of Ultrashort and Short ETFs for S&P and DOW offered by Proshares



The first figure above compares the total volume traded for Ultrashorts within three days of January 22 and March 17 with the Mid July timeframe. The blue bars represent SDS (Ultrashort S&P). The red bars represent DXD (Ultrashort Dow 30)

As I said, pictures speak volumes. Example a total of about 145 million SDS shares traded on Jan 18, 22 and 23, with Jan 22 being the midpoint of January bottom in Markets. A total of about 138 million SDS shares traded on March 14, 17, and 18, with March 18 being the midpoint of March bottom in Markets. And get this, a total of only about 127 million SDS shares have traded on July 11,14 and 15 when we saw the biggest spikes in VIX since the March bottom. Shouldn't the volume on July 11, 14 and 15 have traded higher not only because of the first big spike in VIX since March but also because of the claims that the volume in these ETFs is more than the time period around previous bottoms??

Here is another example with the simple (as opposed to ultra) shorts in S&P and DOW (SH and DOG respectively)



Again the figure compares the total volume traded within three days of Market bottoms in January and March with Mid July. The blue bars represent SH (Short S&P). The red bars represent DOG (Short DOW 30)

Again we see a similar picture. Example a total of about 2.68 million SH shares traded on Jan 18, 22 and 23. A total of about 1.96 million SH shares traded on March 14, 17, and 18. A total of 1.90 million SH shares have traded on July 11,14 and 15.

Conclusion: The panic spike is yet to come unless the obscenely ginormous manipulative power of Feds was successful in the last three days. Which wouldn't make sense because the Fed had more tools back in Jan and March and they still could not prevent the VIX spikes.

Keep in mind we may see a spike as early as tomorrow or as late as August. But based on the above analysis, I am inclined to conclude we have yet to see it.

good luck
Krish