Using a small transformer in series with your load will probably seriously limit the current that can flow in your load. The idea of wrapping a few turns around one of your 120V lines isn't too bad--it gives you good isolation from the 120V. However, to rectify the signal you will need to develop at least 400mV in your home-brew secondary. All is not lost though. You can use a cheap op-amp to amplify the signal enough to use a simple diode rectifier circuit.
The reason you don't want to wrap turns around both wires in your 120V connection is that the currents cancel & you won't get any signal at all (except maybe from some fringing effects).
Mark