The market smarted today with its 280 point drop, but as MarketWatch pointed out, it was only off .7% for the week.

The trouble for a lot of investors is that averages don't mean much if you are in the wrong stock.

Some big name, mega-volume stocks took on water like the RMS Lusitania after it was torpedoed off the Irish coast.

Stocks that provide high-speed internet infrastructure had substantial losses. Charter (NASDAQ: CHTR), the cable firm, has fallen fell from $4.14 to $3.00 this week. Big Band Networks (NASDAQ: BBND) went from $14 to $10. Limelight Networks (NASDAQ: LLNW), another IPO in the industry fell from $17 to $14.50.

Companies in the tech sector that are perceived as already weak took big dives as well. Motorola (NYSE: MOT) was above $17 at the beginning of the week. It dropped to $16.35 today. AMD (NYSE: AMD) went from over $14 to $12.85. Yahoo! (NASDAQ: YHOO) was above $23.60 early in the week. It hit $22.90 today. These stocks are already near their 52-week lows.

In a tough market, those companies viewed as being already in difficult straights often sell-off more than the rest of their industries. It seems that their recoveries appear less certain.

Mortgage companies are not even worth writing about. Some have lost 50% of their value. American Home Mortgage (NYSE:AHM) lost almost all of its. But, the fall-out in financial stocks is far from over.

The market thinks that Bear Stearns (NYSE:BSC) is holding more than its share of weak debt and debt derivatives. If that is true, the stock could be back to its late 2002 low of $54. That means that its value would fall another 50%. Hard to imagine, but entirely possible.

Investors in stocks that are dropping are in a panic now. They have the weekend to read the tea leaves, sweat it out at night, and hope that Asia rallies early Monday.

If the Nikkei and Shanghai Composite signal that the fear has moved around the world.

Well...

Douglas A. McIntyre is a partner at 247wallst.com.

The New York Times [registration required] reports that American Home Mortgage Investment Corp. (NYSE: AHM) is shutting its doors thanks to the fear of its lenders -- who provide the wholesale money they lend to home buyers -- that they won't get their money back. Doug McIntyre posted about this here. Several of AHM's peers -- IndyMac Bancorp (NYSE: IMB) and Accredited Home Lenders Holding (NASDAQ: LEND) -- are also in rough shape.

Last October, I began looking for ways to profit from the collapse in the housing market. My best idea -- posted in December -- was to short shares of NovaStar Financial (NYSE: NFI) which dropped from $116 to $7.19. This post got the attention of a reporter from NPR's MarketPlace who dropped by my office this week to interview me about where the next opportunities for short profits might lie.

My answer is that I don't know. That's because the hedge funds, endowments, pension funds, and insurance companies that buy the mortgage backed securities (MBS) constructed from the loans that NovaStar and its peers originate are not disclosing the value of their MBS holdings. To identify short selling opportunities, I'd like to know this information because many MBS holders will be wiped out.

American Home Mortgage (NYSE: AHM) fired almost all 7,000 of its employees late yesterday. According to CNN Money, the company will go into bankruptcy immediately.

AHM made $59 billion in loans last year, many of them with adjustable-rates. Many of the company's loans were to the middle part of the housing market and were no sub-prime mortgages.

Another lender, Accredited Home Lenders (NASDAQ: LEND), also showed signs of distress yesterday. After closing at $8.35 on Wednesday, shares fell as low as $3.98 Wednesday.

The mortgage lending fall-out is much likely to get much worse. While many of the problems with sub-prime mortgage problems have now been exposed, loans to more credit-worthy borrowers are likely to fall apart fairly fast.

A large number of adjustable-rate mortgages made in the last year will moved to higher, fixed rates over the next 24 months. Some consumers will not be able to make the larger payments. With home inventory rising and prices falling, they may also find it impossible to sell their homes, unless they want to take a large loss.

The mortgage troubles today may only be the beginning of a much uglier period.

Douglas A. McIntyre is a partner at 24/7 Wall St.com.

There are times when Wall Street, to borrow a phrase, takes "two steps forward and one step back."

Then there are times when the Street simply stands, and waits for the events on the ground to clarify the financial landscape.

And that was the case Tuesday, as Monday's rally faded into Tuesday's 140-point Dow sell-off. And one reason was the subprime issue in general, which seems to offer a data point daily regarding the sector's health, and its impact on the housing sector, and the economy.

Tuesday's data point was American Home Mortgage (NYSE: AHM), which dropped more than 80% to about $1.00 per share from its recent $10.50 per share after the company indicated it is unable to borrow money under its banks lines and is looking at ways to raise money, including "the orderly liquidation of assets."

Bear Stearns (NYSE: BSC) probably hoped that it mortgage-backed securities problems were behind it when its bailed out two of its own hedge funds. But no such luck. The company has halted withdrawals from another fund that The Wall Street Journal says has another $850 million in mortgage instrument holdings.

Bear Stearns says it can work its way out of the mess. The investment bank stated that it is not prudent to sell the fund's holdings in this environment.

But, what does that mean. Probably that if the portfolio was sold off there would not be nearly enough money to pay out investors, and Bear Stearns would be stuck with the check.

Over the last six months shares of BSC are down well over 25%, and the market is concerned about whether there is more news that the company has yet to disclose about it mortgage security investments. Along with UBS and JP Morgan (NYSE: JPM), It has loaned American Home Mortgage (NYSE:AHM) money. And that mortgage company is in the midst of a collapse that could cause a liquidation this week.

Bear Stearns could be in worse shape than Wall St. knows now. Its shares could go lower... and lower.

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"Is the sub-prime mortgage crisis a canary in the coal mine, warning of greater risks to come?" asks global expert Vivian Lewis.

In her Global Investing newsletter, the advisor says, "I think the stock market fall is not the end of the correction. The market has benefited from abnormal excess liquidity lately. Now the spread of caution from the sub-prime mortgage market will hurt the pace of stock buybacks and private equity takeovers."

Adding to these concerns is the latest news surrounding American Home Mortgage Investment (NYSE: AHM) and the REIT's announcement that the dividend would be delayed. Lewis explains, "This will hit REITs, a yield instrument widely used by U.S. investors in search of fixed income." Meanwhile, American Home Mortgage's timing, she notes, is significant for two reasons.

First, says Lewis, "The Long Island managers probably had to arrange for the cash for that day's dividend to reach the financial system on the day it was due. And they couldn't."

MAJOR PAPERS:

• Rupert Murdoch's $5B, $60 a share offer for Dow Jones & Company (NYSE: DJ) appeared to be closer to a final deal as Dow Jones was negotiating with News Corporation (NYSE: NWS) to pay advisory fees for the Bancrofts, the majority stock holders, in exchange for some of the holdout members to back the deal, according to the Wall Street Journal.
• Barron's Online's "Inside Scoop" column reported that so far this year, five top BlackRock Inc (NYSE: BLK) executives grossed more than $82.4M by selling 486.5K shares on the open market at per-share prices ranging from $147.30 to $179.93, according to Thomson Financial data.

• Mortgage woes continued to deepen yesterday, reported the New York Times, which noted that the New York Stock Exchange elected not to allow trading yesterday on the shares of American Home Mortgage Investment Corp (NYSE: AHM), after the company reported that it would suspend its dividend and faced "significant" margin calls from banks.
• The New York Times reported that AT&T Inc (NYSE: T) has made a deal with online music retailer EMusic that will allow people to buy songs from independent labels through their cell phones.
• The Los Angeles Times reported that Toyota Motor Corporation (NYSE: TM) will introduce a new "standard" version of its Prius gas-electric hybrid for the 2008 with a base price of $20,950, 5.5% less than the lowest cost 2007 model.

Relieved investors are running around Wall Street with a piece from Bloomberg that says the market is as cheap as it has been since 1991. The theory is based on the fact that the S&P 500 "valued at 15.4 times estimated profit, is the lowest it has been since January 1991."

The numbers are hogwash and investing based on such a broad metric will bring nothing but grief.

The market valuation after the Crash of 1929 may have looked attractive, but a number of pieces of the overall economy were not. Right now, US markets face a set of circumstances that are ugly, vicious, and not likely to go away.

Iran said over the weekend that it does not expect OPEC to increase oil output when it meets in September. Concerns about demand continue to eat at optimism about global financial stability. The Chinese need more oil and so does the US. It is a fiction that everyone will be driving hybrid cars and using solar energy in 2020.

Adding to the oil price problems are the unrest in two large oil-producing countries, Nigeria and Venezuela. Venezuela President Hugo Chavez appears to be a quart low on sanity and sense, and this has caused Exxon Mobil (NYSE: XOM) and ConocoPhillips (NYSE: COP) to leave the country.

The other novenas being said near the lower tip of Manhattan are for the mortgage mess to pass. American Home Mortgage (NYSE: AHM) did not open today. It has suspended its dividend and payments to it preferred holders. Last week the head of Countrywide (NYSE: CFC) opined that this was the worst real estate market since the '30s.

The market may look cheap on paper, but that is the only place it is cheap.

Douglas A. McIntyre is a partner at 24/7 Wall St.

MOST NOTEWORTHY:

• RBC Capital cut American Home Mortgage (NYSE: AHM) to Sector Perform from Outperform citing the deterioration in the global debt markets for the downgrade.

• Morgan Stanley downgraded shares of Biogen Idec (NASDAQ: BIIB) to Underweight from Equal Weight citing risk to Rituxan growth.

• Merriman downgraded Bebe Stores (NASDAQ: BEBE) to Neutral from Buy as they believe new fall merchandise is not performing well enough to improve sales trends.

• Robert W. Baird downgraded shares of Ingersoll-Rand (NYSE: IR) to Neutral from Outperform citing higher risk premium due to the IRS challenge and tighter credit markets that could impact the Bobcat divestiture.

• Children's Place (NASDAQ: PLCE) was cut to Neutral from Positive at Susquehanna.

• Thomas Weisel downgraded LoopNet (NASDAQ: LOOP) to Market Weight from Overweight.

• ThinkEquity cut Kyphon (NASDAQ: KYPH) to Accumulate from Buy.

• Needham downgraded QLogic (NASDAQ: QLGC) to Hold from Buy.

• JMP Securities downgraded ValueClick (NASDAQ: VCLK) to Market Perform from Outperform.

GlaxoSmithKline (NYSE: GSK) volatility elevated into 7/30 Food & Drug Administration-FDA meeting on Avandia.

• GSK closed at $49.63. A FDA advisory committee meeting on 7/30/07 will review the heart risks of GSK's diabetes drug Avandia.
  
• The New England Journal of Medicine carried a story on 5/21 saying, Avandia "significantly increases" the risk of heart attack.
  
• GSK August option implied volatility of 35 is above its 26-week average of 20 according to Track Data, suggesting larger risk.

American Home Mortgage (NYSE: AHM) volatility elevated into delayed dividend payment.

• AHM invests in mortgage-backed securities and mortgage loans.
  
• AHM announced after the market close on 7/27/07 it will delay payment of its dividend on it common stock to preserve liquidity.
  
• Freidman Billings says: "We are lowering our price target on AHM to $3.00 from $15 to reflect the uncertainty of the unprecedented liquidity events in the overall market and issues specific to AHM's REIT structure."
  
• AHM August implied volatility is at 163; puts are at 198; above its 26-week average of 56 according to Track Data, suggesting larger price risks. AHM puts are priced higher than calls on AHM being difficult to borrow.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

American Home Mortgage (NYSE: AHM) options indicate Panic as AHM sells off 24%. The company invests in mortgage-backed securities and mortgage loans. AHM is recently down $2.72 to $10.89 on unconfirmed credit line chatter. AHM announced on 6/28/07 it will take substantial charges for credit-related expenses in the 2nd quarter and withdrew its 2007 earnings guidance. AHM call option volume of 10,996 contracts compares to put volume of 29,783 contracts. AHM July straddle is priced at $2.25. AHM August put option implied volatility is at 183, August put implied volatility is at 205; above its 26-week average of 47 according to Track Data, suggesting larger price risks. AHM puts are priced higher than calls on AHM being difficult to borrow. July options expire tomorrow; July 20th.

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

A number of leading financial newsletter advisors -- including Mark Skousen, Bryan Perry, Daniel Frishberg, and Neil George -- have recently taken positions in specialty finance and mortgage lending stocks, sectors that had suffered from the "meltdown" in the subprime mortgage market.

Mark Skousen, in his The Hedge Fund Trader, notes, "Mortgage lenders are making a comeback." The recent price recovery, he notes, has been broad ranged, covering most thrifts and mortgage trusts. He notes, "It appears that investors have concluded that the subprime lending scandal was limited."

iStar Financial (NYSE: SFI), he states, is his favorite commercial REIT. In fact, it was a recent announcement from iStar that acted as a catalyst for an improvement in the overall sector.

He explains, "California savings & loan Fremont General Corp. (NYSE: FMT) announced that it would sell its commercial real estate lending business to iStar Financial for about $1.9 billion. With Fremont expecting now to survive its subprime mortgage woes, many now consider the real estate industry recovery to be real."

Skousen also points to strong insider buying of shares in thrifts and mortgage banks.