SAN FRANCISCO -- It wasn't supposed to be this way. Not with triple-witching expiration heavily skewed toward

puts, and certainly not with the election being resolved -- especially given it ended with Wall Street-favorite

George W. Bush

as president-elect.

Those factors, along with continued hopes for a

Federal Reserve bias change (or even rate cut) next week, as well as the calendar, were supposed to give stock proxies a boost. But the diminishment of momentum that began midday Tuesday continued today, sending the

Dow Jones Industrial Average

down 1.1%, the

S&P 500

off 1.4% and the

Nasdaq Composite

lower by 3.3%.

In hindsight (always 20-20, right?), it seems pretty clear that a Bush victory was "built into" stock prices and that the selling "on the news" isn't shocking. But it also seems the "election-uncertainty" bugaboo provided a smokescreen for bullish investors/gurus to avoid focusing on the reality of declining fundamentals. Now that the election is finally resolved, all that's left (aside from desperate hopes for a rate-cut rescue) is the cold hard truth of corporate earnings, which continue to disappoint.

After the close of trading,

Microsoft

(MSFT) - Get Report

became the latest to raise the

red flag, a once unheard of proposition at Ft. Redmond.

In after-hours trading, shares of Microsoft were lately down 5.4%, according to

MarketXT.com

, while other tech favorites such as

Intel

(INTC) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

were lower in sympathy. In

Globex

trading,

Nasdaq 100

futures were recently down 46 to 2624, while S&P 500 futures were off 7.20 to 1350.80

During the regular-hours session, much of the focus was on

FedEx

(FDX) - Get Report

, which one market player dubbed "the railroad" of today's economy. The overnight delivery giant tumbled 9.3% after its

warning. Rival

United Parcel Service

(UPS) - Get Report

slid 6.3% despite reaffirming its profit outlook. The

Dow Jones Transportation Average

slid 3.8%.

Financial stocks, meanwhile, were roiled by

warnings from merger partners

J.P. Morgan

(JPM) - Get Report

and

Chase Manhattan

(CMB)

, as well as the memory of

Charles Schwab's

(SCH)

announcement Wednesday of big declines in customer trading and new assets in November. The

Philadelphia Stock Exchange/KBW Bank Index

fell 2.3%, while the

Amex Broker/Dealer Index

shed 4.7%.

Those counting on a rate cut and believing the selling has created value in the financial space might want to consider regional brokers such as

Raymond James

(RJF) - Get Report

, which fell 5.2% today,

A.G. Edwards

(AGE) - Get Report

, which lost 4.2%, or

Morgan Keegan

(MOR) - Get Report

, which slid 0.3%.

In a recent interview, Sam Ginzburg, senior managing director of equity trading at

Gruntal

, theorized that such names might be good trades because there's going to be another round of mergers in the brokerage space, driven by a return to fashion of traditional brokerage business.

After this year's struggles, "people want to hear a voice and are willing to pay for it," Ginzburg said. Also, "they want somebody to blame," which they don't get trading online.

The trader mentioned Raymond James and A.G. Edwards as personal favorites in the space. But I played phone tag with Ginzburg today, so I'm unable to determine whether the warnings from J.P. Morgan and Chase, or Schwab's announcement, have changed his outlook. As always, I urge you to do your homework before investing in any stock.

Who Moved My Rally?

As mentioned above, the expectation heading into this week was that the imbalance of puts vs.

calls -- at $22 billion late last week -- would spark a rally as tomorrow's triple-witching expiration approached.

Merrill Lynch

reported that the market rallied in 12 of the last 13 times puts so heavily outweighed calls. As puts expired or were sold back to options dealers, the dealers would buy underlying stock index futures to unwind their hedged positions. Or so the thinking went.

What went wrong this week was that "the news has been so negative," said Steve Kim, equity derivatives analyst at Merrill. The negativity meant many puts were expiring "in the money," so their holders didn't have to cover, he continued. "Collectively, investors didn't seem compelled to take the instruments off, in which case you're effectively not going to see the

unwinding trades."

Of 52,000 S&P 1350 put contracts heading into today, only 6,000 were covered, while only about 1500 of 22,000 S&P 1375 puts were covered, Kim noted. "Given the type of news, why should

put holders cover?"

Separately, remember the San Francisco hedge fund manager I quoted

last Friday as seeing some positive developments heading into this week's expiration? In an interview today, he again requested anonymity and then said plainly: "Once this election thing fizzled, there was no push."

In addition, big open interest in puts and calls on Microsoft at $55, Intel at $35 and

Cisco

(CSCO) - Get Report

at $50 are "putting pressure on the stocks" as expiration approaches, he said, because the open interest is "acting like a magnet." Commonly known as

pinning the strike, this activity in such huge market-cap names is thus pressuring major stock proxies.

The hedge fund manager has a "slightly short bias" in part because of the weight of expiration, but also because of a growing belief that the Comp is going to make a "W" bottom rather than a "V"-shaped one. A chart of

Broadcom

(BRCM)

-- which he recently bought at $100 but then sold at $120 because he felt it was overvalued at $120 (The stock traded as high as $148.50 Tuesday but closed down 17.4% at $117.25 today.) -- has the clearest representation of the pending "W" that is also evident on the Nasdaq's chart, he said.

Full Dubya Ahead?
Nasdaq and Broadcom over the past month

"I'm not scared out of tech, but the big tech stocks are still overpriced," the source said, wondering if "the capitulation everyone was waiting for is going to come from higher levels and won't involve more people losing money since they jumped back in after

Greenspan's speech last Tuesday.

Before their earnings were announced, the hedge fund manager suggested the market's reaction to tonight's earnings from

Oracle

(ORCL) - Get Report

and

Adobe

(ADBE) - Get Report

-- which bested expectations by a penny and two pennies, respectively -- would be "the template for how we react to earnings" in the coming reporting season.

But that was before the warning from Microsoft.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.