Co-authored by Justin Spittler

We recently pointed out how the Average Directional Index (ADX) for the S&P 500—a momentum indicator—had hit a level that usually foreshadows a big move. What we didn’t know then is that this big move could be one of historic proportions…

The ADX just dropped below 9, which is the lowest reading in 16 years. The last four times that the ADX has sunk this low, the S&P 500 has either soared higher or dramatically retreated afterward.

The ADX indicates trend strength, but not direction; however, declining participation levels, a breakdown in the Russell 2000, and the extended nature of this bull market all point to a coming reversal. That said, this market has a knack for surprising, so stay tuned.