Little by little, the doomsday scenario for bears is rounding into shape. It's the scenario that skeptics most dreaded, and which could not happen in our lifetimes or our children's lifetimes. The scenario cost them dearly in 1999, and they prayed and vowed it would never be repeated.

The scenario, of course, is the one where the federal government, for political reasons, intervenes in the economy by adding so much liquidity through fiscal and monetary stimulus that dollars slosh into stocks without regard to any reasonable valuation measure.

That was the situation in 1999. In the fourth quarter, dreading financial Armageddon in the face of Y2K, the

Federal Reserve

pumped so much money into the system that the most speculative corner of the market, the

Nasdaq Composite

, advanced 49% without ever pausing for breath. The technology-heavy index had only advanced 24% in 1999 until Oct. 1 -- a lot, but nothing like the premillennial explosion that was to follow.

In this case, it's President Bush's re-election chances at stake in a winner-take-all effort by policymakers to get in the good graces of likely voters: Nascar dads and Nasdaq moms with credit cards and 401(k) plans. What better to get the public's mind off the jobless recovery at home and endless occupation in Iraq than a rip-roaring stock market rally? No jobs and no peace? Let them eat steak.

A Rally Would Help Everyone

If the market does get out of hand in the next two quarters -- historically the most accommodating, for equities anyway -- a 50% retracement of the index's three-year high could be in play, putting Nasdaq 2500 in sight. If that happens -- and there are a dozen reasons why it won't -- stocks that today look like they're perching at the apex of momentum insanity could go beyond crazy and well into absurd and breathtaking.

Stocks that are just barely dragging themselves out of the bear market dirt, even after six months of rally, could finally get a bit of polish. And stocks that should succeed for the right reasons would also prosper.

To find stocks in the first two camps, I'll use methods similar to those used

back in April to seek momentum stocks primed for further gains. In that column, I divided the market into two leagues by exchange:

NYSE

and Nasdaq. At that time, the chosen NYSE names already had risen 65% and the Nasdaq names already had climbed 105%. Cynics said these were done and would never go higher, yet the NYSE names, for better or worse, have since risen another 49% and the Nasdaq names have risen another 106%.

Momentum is a funny thing. Stocks in the thrall of performance-chasers at hedge funds and pension funds alike can soar to valuations that sear the imagination.

Consider the case of

Tripath Technology

( TRPH), which is the leading gainer this year among Nasdaq stocks with prices over $2 and average daily volume greater than 50,000 per day. The maker of semiconductors for digital audio and television applications, as well as DSL components, is up 1,667% this year through Sept. 22. It was even up 13% on Monday when the broad market sold off 1.6%.

To be sure, the company has had several design wins in recent weeks with

Alcatel

( ALA) and

Sony

(SNE) - Get Report

. But it carries a $241 million market cap on just $11 million in trailing 12-month revenue; it lost $10 million over that period. According to CFO David Eichler, the company has reduced its cash burn to $1 million per month and expects to break even by mid-2004.

The good news is that the company does not appear to be owned by any major mutual funds, so if early investors, such as the hedge fund Circle T Partners, are right, there could be a lot more gains to come as the funds swarm in. The company met with institutional investors last week in New York for the first time, which perhaps accounts for the recent pop in the stock.

It's also moving into new markets, including a technology that could dramatically improve cell-phone battery life. In addition, the lack of analyst coverage means that it will never be the subject of a devastating downgrade. "We have been in stealth mode until the last few months," Eichler said, "so with design wins we expect a lot of revenue growth next year."

Not all high-momentum names are so hard to swallow -- they may have garish returns, but they're still rather cheap as they recover from getting punished over the past three years. Starring in this second camp is

Brightpoint

( CELL), which traded for as much as $108 in 1997 and $61 in 2000, but fell to less than $1 by the middle of 2002. Barely breathing by the broad market rebound last fall, it began to buzz in a hurry when investors returned to the wireless group.

As a dominant packager of mobile services, Brightpoint has forged key deals with

Nokia

(NOK) - Get Report

, Virgin Mobile and others this year. In July, it announced the settlement of lawsuits with shareholders and a 25% quarterly earnings gain. Two weeks ago, it settled fraud charges with the

Securities and Exchange Commission

. Newfound optimism among traders, and regret among short-sellers, has pushed shares up 270% in the past three months and 560% so far this year. Traders are still apparently in no mood to take profits, as prices tacked against the downdraft Monday to advance 8%.

Too expensive now? Not really. With a $417 million market cap and $1.4 billion in trailing 12-month sales, it sports a price-to-sales multiple below its peer group at 0.28; insider selling has been minimal despite the recent big move, and through June 30, the stock was underowned by the major mutual funds. There could well be room to run.

A similar name is

Unova

( UNA), a listed stock up 160% since the start of the year that still only carries a 0.77 price-to-sales multiple. It was highlighted in a previous column this year for its advanced products and patents in the emerging RFID, or radio-frequency identification tag, space.

In the third camp are stocks that have done well through thick and thin over the past decade, but are struggling to keep up the pace this year. The leading name in this group is

Brown & Brown

(BRO) - Get Report

, a Florida-based insurance company that has the rare distinction of having posted stock-price gains in every one of the past 10 years.

It's only up 2.6% this year, but it has averaged 30% gains each year since 1993, including advances of 19% last year, 57% in 2001, 84% in 2000, 11% in 1999 and 18.9% in 1998. Sporting a price-to-earnings multiple of 20, compared to estimated growth over the next few years of 21%, it is anything but expensive -- making it perhaps the best insurance against poor or volatile results over the rest of the year.

I'll keep track of all of these as the year concludes, and report back.

Jon D. Markman is senior investment strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at

jmarkman@oddpost.com. At the time of publication he owned Nam Tai Electronics and LCA-Vision.