Money moves the market: Stocks - Part II

Key points:

• It is said that "money moves the market," and Real M2 offers a useful way to track the trend in the size of the money supply
• In Part I, we looked at using monthly changes in Real M2 as a stock market indicator
• Here in Part II, we will apply a trend-following approach to Real M2 as an alternative indicator

M2 - a Quick Review

In Part I, we detailed the data that we use to measure the money supply, known as "Real M2." M2 is the U.S. Federal Reserve's estimate of the total money supply, including all the cash people have on hand, plus all the money deposited in checking accounts, savings accounts, and other short-term savings vehicles such as certificates of deposit (CDs). Real M2" is M2 deflated by inflation. 

This series deflates the M2 money stock (https://fred.stlouisfed.org/series/M2SL) with CPI (https://fred.stlouisfed.org/series/CPIAUCSL). The Real M2 data series can be found at FRED here.