Giving Volume Its Due

It's an important part of the puzzle -- not the most important, but it would be hard to put the puzzle together without it.
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Volume's one of those strange things that inspires all sorts of emotions. Yesterday, when I was perusing

Gary B. Smith's

excellent column looking for new ideas, I came across his musings on volume, and the takeaway that I find it a nonindicator.

It is true that, in a moment of pique, I mentioned that I find volume to be worthless MOST of the time. But it was in response not to my own trading style but to the way the media uses volume.

Look, I am on this media kick now because I think that we can make a difference in trying to get the business media smarter about business than it currently is. That was the genesis behind most of my work at

SmartMoney

and among the columns I have written for

Worth, GQ, Time

and

New York

magazine.

I have always had the same theme: The media, because of a lack of reader interest in business, gravitates toward what can be easily measured objectively, rather than what really matters. It then confuses those trying to learn how to manage their own money. The confusion sowed by the media's lack of knowledge often forces us to rely on others -- namely brokers. I hope you will rely on us at

TSC

because we don't want your commissions, just your trust.

Take the focus on volume. Most of the talking heads on TV really know very little about business. Some don't know anything; heck, some of them could be doing what we in the game are doing -- trading -- and making a darn good living. But other talking heads just read, and they tend to read copy by people who could not do what we do successfully. They couldn't trade their way out of an

International Paper

bag.

These editors and readers know just enough to get by. One of the things they know is to ask what the volume of trading is. If the market is up and the trading is light, these talking heads then pronounce the rally phony. If the market is down, and the trading is light, I never hear the corollary, which is that the selloff may not be for real. Volume is virtually ignored by the talking heads when the market goes down, and instead, we get the bearish array of higher interest rates, lower profits and negative

Fed

action.

Why do I even care about this stuff? Because I am on a mission. I have wanted to change business journalism from the day that I got involved in it. I have wanted business to have the same stature that sports has. It is every bit as exciting -- and a lot more important to your wallet. But sports is the province of truth, and business is the province of puff and ignorance.

In the media, particularly TV, business journalism has been this giant backwater. Until

CNBC

, nobody good went into it on purpose. It was always by default because they couldn't cut it elsewhere.

Business just wasn't glamorous or violent so it had no place in network reportage, no matter how important it really was.

Not with

CNBC

. They have my mantra, so there has been a really fine fit there. It is why I fought to get reinstated after the

WavePhore

(WAVO)

incident -- because I love "Squawk", just love it, and think that the show has revolutionized business journalism. I didn't want to get blown out just cause I said a stock was too high -- oops was I ever right about that one.

It was in the context of how poor most business news reporting is that I said volume didn't mattered. Volume, or lack thereof, has been used against rallies only. No matter how light the volume is on a big down day, the talking heads would panic you out!

Everyday I use volume in individual securities. An important bottom might occur in a stock when big volume occurs on the downside as a seller finishes. A big up day with big volume can be very important, as I thought Friday was.

More important than volume for me is the advance/decline line. That determines the true health of the market. Let's say the market went down 100 points on light volume. I would care about the A/D line. One hundred points is nothing these days, and volume is dependent on programs, which often control up to 30% of the volume, making most days' volume irrelevant!

But if you told me 2,000 issues were up, I'd get excited. And if you told me 2,000 issues went down, light or heavy volume, I would be worried. So, I apologize to all of you volume-ologists out there, including my wife, who used to talk incessantly about it. All I want is for volume to be put in the proper context: It is an important part of the puzzle -- not the most important, but it would be hard to put the puzzle together without it.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. 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 by sending a letter to TheStreet.com at letters@thestreet.com.