Do Kangaroo tails predict that a market has stopped going down? I have made an indicator that looks at whether the market has managed to close beyond the extreme of the tail within 10 days. I have only used instances where the 10-day moving average is moving in a direction opposite to the 200-day moving average (the results are dreadful otherwise). The question is whether the tail predicts an end to the counter-trend move in the short term.

Here are some results (Time period is 30 years for equities and max. available for other markets — c. 8 years for futures and 10 years for currencies; “long” and “short” should be taken as the direction you would need to trade to close a position — i.e. it is a “long success” when the market has been going down and stops (for at least 10 days) after a kangaroo tail).

It looks like the main use of the kangaroo tail should be to predict the end of short-term selling of risk assets in a risk-asset bull market. Currencies don’t seem to tell us very much here, except the AUD which has been a risk-on sort of currency for some years. Tails clearly occur most frequently in equities, even adjusted for the duration of the sample. The samples are pretty small but the consistency across different markets gives me a bit of confidence.