SAN FRANCISCO -- "It could have been worse" was about the only solace those long could take from market action both Friday and for the entire week, which saw the

Dow Jones Industrial Average

fall 2.6%, the

S&P 500

decline 4.2% and the

Nasdaq Composite

lose 9%.

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The market's most recent declines certainly aren't bringing much holiday cheer to optimists, but seem almost tame given the avalanche of profit warnings from high-profile companies, which reached critical mass this week. That's got some observers speculating that a year-end rally may yet materialize.

"The managing lower of expectations is about 80% complete," said Scott Bleier, chief strategist at

Prime Charter

. "I think the earthquake is over and today is an aftershock. Aftershocks can be devastating, but we think this is going to be a decent near-term bottom."

On Friday, major proxies closed solidly lower, dragged down by market-cap behemoth

Microsoft

(MSFT) - Get Report

, which fell 11.3% after issuing a profit warning late Thursday. A midafternoon push ran out of steam and the Dow closed at its lows, down 2.3% to 10,434.96, but broader-market averages closed off their worst levels of the session. The S&P ended Friday off 2.1% at 1312.33 vs. a low of 1305.38, while the Comp ended down 2.7% at 2654.42 vs. a nadir of 2596.03.

Bleier suggested that Microsoft made a successful "retest" of its recent lows today and that the Nasdaq did the same, even if the index didn't trek all the way down to its Nov. 30 low of 2523.

The strategist cautioned that he's not looking for a V- or even a U-shaped bottom for the Comp, but believes the index has established a new trading range between 2500 and 3500.

"I don't think we'll have the capitulation bottom to Nasdaq 2000

or lower some are suggesting," he said. "I'm not saying the world is the greatest place, but the successful-test theory is a good theory for the year-end. There are some cross-currents of tax selling

but, I'm sorry, I'm optimistic."

To some, a Wall Street strategist feeling the need to apologize for being optimistic might indicate sentiment has gotten sufficiently negative that a true bottom is at hand. But not according to Michael Driscoll, director of listed trading at

Credit Suisse First Boston

.

"The election is out of the way but you got the economy, earnings and the political situation -- it's an awful lot on people's plates and very disconcerting," Driscoll said. "The market is in for a bit of rough sledding. I don't think we're anywhere close to capitulation but I see a gradual erosion, a melting away" of major averages, along with people's confidence.

'W' for 'Victory' and 'Warning'

Traders were confident heading into the week after the

prior week's gains, and expectations that both triple-witching expiration and resolution of the presidential election would encourage buyers. Such sentiment helped major proxies close uniformly higher Monday, with the Comp's 3.4% gain leading the way.

But cautious comments from

Pfizer

(PFE) - Get Report

and earnings warnings by

Advanced Micro Devices

(AMD) - Get Report

and

Lowe's

(LOW) - Get Report

presaged a slew of similar announcements to come.

Eastman Kodak

(EK)

warned Tuesday but closed higher, further encouraging optimists, even as major proxies ended mixed.

Compaq Computer

(CPQ)

raised the red flag after the close but many observers said that was not shocking, given prior warnings in the PC space.

Additionally, rally hopes were raised by the

Supreme Court's

decision Tuesday evening that effectively ended

Al Gore's

challenge of election results, clearing the way for

George W. Bush

to be declared president-elect.

But election resolution only seemed to heighten the earnings uncertainty, exacerbated Wednesday by warnings from

Whirlpool

(WHR) - Get Report

and

Illinois Tool Works

(ITW) - Get Report

.

Compaq's warning weighed on a host of PC names, while storage stocks such as

Sun Microsystems

(SUNW) - Get Report

and

Veritas

(VRTS) - Get Report

also declined, sending the Comp down 3.7% and the S&P off 0.8%. The Dow managed to rise 0.2%, behind strength in tobacco, pharmaceutical and drug stocks.

But Gore's concession Wednesday evening was overshadowed Thursday by profit warnings from merger partners

J.P. Morgan

(JPM) - Get Report

and

Chase Manhattan

(CMB)

, which eliminated financials as a safe haven for investors. Separate warnings from overnight delivery giants

FedEx

(FDX) - Get Report

and

United Parcel Service

(UPS) - Get Report

, as well as

Maytag

(MYG)

further pressured stock proxies, which fell across the board, led by the Comp's 3.3% decline.

Shortfalls after the bell Thursday by Microsoft and

Clorox

(CLX) - Get Report

and

Black & Decker's

red flag Friday morning capped a week of such announcements, which fostered growing concerns about the state of the economy.

"Red flags on earnings are not just from 'New Economy' stocks; it's pretty much across the board," observed Tony Cecin, manager of Nasdaq trading at

U.S. Bancorp Piper Jaffray

in Minneapolis. "Every time it looked like

the market was getting some positive momentum

this week, someone else preannounced. I think the mood

among traders is more frustration than anything else" as the weekend beckons.

Cecin was encouraged by

Federal Reserve chairman

Alan Greenspan's acknowledgement of the slowdown in a

speech Dec. 5. But unlike others, the trader does not expect the Fed to do anything more than change its bias when it meets next Tuesday.

"There's no question

the economy is slowing and has been slowing. The question is how far, how fast," the trader mused. A Fed ease next week "would be a clear sign they'd ramped up rates a little too far, but it's too early to make a real good judgment and ascertain beyond a shadow of a doubt."

Given market action this week, the risk may be less that it's too soon to judge the economy but more that it's possibly too late for even Fed action to improve its short-term health.

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.