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Flow Matters

Cramer looks at his one remaining advantage over retail investors.
Author:

Flow matters. As a professional trader, I hear flow. I hear it because brokers are trying to sell and buy large pieces of merchandise at advantageous prices to their clients.

I point this out for one simple reason: Flow is what allows me to make judgments about whether the buying is real or just spillover from programs.

Today I am hearing nothing but buy orders from my trading turret. Big buys. At the same time, there is also some call-buying that might impact the market, but what you see on your screen is definitely real.

Flow is really the only advantage I still have over the individual investor. You have all of the news and information at the same time I do. You can get executions online faster than or equal to me. You have the same low commissions I have.

But you don't have flow.

So many of you ask me how I know what is real and what is program. Last week, for instance, there was a size (meaning multimillion-dollar)

buyer of

Dow Jones

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puts. The seller of those puts was a broker/facilitator, meaning he had to lay off the risk of those puts by going short common. The selling by the broker of the individual Dow stocks knocked the DJIA down. The selling neutralized the broker so he had no exposure.

The customer, however, was making an outright bet against the Dow. (Ouch, he must be hurting today!) I saw his sale as an opportunity to buy because he alone really caused the decline in the market.

Today is different. There are many, many buyers of stocks, in part because bonds are good and in part because it is the end of the quarter and we often see this kind of buying with a day or two left.

I respect multiple buyers. I take the other side of one buyer or seller who may move the markets. That's my edge.

How can you get this edge? You have to have accounts with a bunch of brokers. You have to take their calls. You have to respond periodically to the merchandise or they won't continue to give it. In other words, you have to be an institutional client.

I don't know any other way around that. It's what ultimately distinguishes my business from the hobby form of investing.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.