For the past couple of weeks, I’ve been telling readers about one of my favorite indicators. In short, it tells us about the health of the market at any given time.

As I mentioned before, this indicator has served us well over the years. And so far, it’s looking like it’s doing its job again – by warning us of the recent volatility we’ve been experiencing in the market ahead of time.

The most recent time we took a look at this indicator, I gave a warning about letting your ego get in the way of trading. But there’s nothing wrong with giving ourselves a little pat on the back before getting back to the serious business of analyzing the market with a degree of detached objectivity.

Okay, so with that being said, let’s get down to the nitty-gritty. What’s going on in the markets… what is my breadth indicator showing… and how will we know that it’s “all clear” to get back in…

The markets saw a big selloff on Monday, September 20th, then it rebounded nicely to finish that week in the green. Last week we retested those lows, and the market continued to show a lot of volatility.

Then, once again, we started this week on the wrong foot. Monday looked like it might be the day the bottom fell out, but then yesterday we had an impressive rebound.

The market hasn’t marched to its high set at the beginning of the month (September 2), so my breadth indicator — AD Line — is still showing weakness in the market.

What The AD Line Is Saying Now

Now if you haven’t been following along, let’s recap what this is…

The AD line is what’s known as a breadth indicator. When the market is rallying, ideally you want to see a large number of stocks that are reaching new highs. This means that the bull market is healthy, and it confirms the bullish trend.

However, if the AD Line fails to keep pace with the underlying index, this is a sign of weakness. It’s what market technicians call a bearish divergence. This is exactly what happened – twice – which caused me to warn that we may see a pullback in the market very soon.

That’s exactly what happened. So here’s the updated AD Line…

As you can see, not much has changed in the last two weeks. While you could describe this as a “pullback,” we’re not in full-blown “correction” territory. At least not yet.

I continue to remain cautiously optimistic — and I am actively recommending trades for my premium subscribers. We have plenty of cash on hand in our hypothetical portfolios.

Generally speaking, this can be a difficult environment to trade in, but once I get the “green light” from my “investor sentiment” indicator, we will dive right back into the market headfirst.

This Little-Known Indicator Will Give Us The “Green Light”

I’ve touched on this indicator a couple of times. I first introduced it to our non-premium readers here. And then again, in early March of last year, I showed how it was flashing an opportunity to get back in the market and buy.

The indicator I’m referring to is the Coppock Curve, which is a momentum indicator that measures the market’s “emotional state.”

While some may use it as a sell signal, its real value comes at identifying market bottoms (it’s usually too early to signal market tops). Understanding the prime buying opportunities with this indicator is rather simple. Once it drops to “0”, the next upward reversal almost always signals a buying opportunity and the start of an uptrend. As you can see in the chart below, it has identified every significant buying opportunity over the last decade.

Right now — much like the breadth indicator — the Coppock Curve is still wary of the market’s emotional state. It hasn’t dropped to drop to zero yet, though. But it’s clearly working its way down.

Action To Take

I’m going to watch this closely in the weeks ahead, especially if the market trends further downward. Should the Coppock Curve drop below zero then make its infamous U-turn, that will be my green light that a new uptrend is taking place.

If and when that happens, I will then confirm the uptrend with the AD Line. Then, I’ll move from slowly adding positions to my premium portfolios to diving headfirst into buying.

As a side note, when the trend does turn more bullish, I anticipate small- and mid-sized companies to surge first. So that’s where I’d focus my efforts.

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