The stock market’s two-day bloody nose on Thursday and Friday – a combined decline in the Dow of nearly 262 points, or more than 2.25% – is enough to scare any investor.

Not so for Lady Sunshine, who thinks the bleeding will be short-lived and that the sell off represented a good buying opportunity.

Lady Sunshine is not someone to be taken lightly. She is Joan Lappin, the president of Gramercy Capital Management, a 20-year-old New Yorkbased investment firm with about $20 million in assets.

Late last October, with bearish sentiment rampant, she bucked the crowd by forecasting a significant market rally.

Based on what followed – a series of Washington scandals; soaring energy prices; ongoing hikes in interest rates; mounting international tensions, notably from nuclear-hungry Iran; a faltering housing market, and renewed inflation worries – her timing, on the surface level, couldn’t have been worse.

Lo and behold, it turned out that despite the bevy of problems she was right on target, as the major market averages (such as the Dow, the S&P 500, and Nasdaq), proceeded to balloon roughly 10% to 11%.

“I was amazed,” she said. “Who would have thought it?”

In roughly the same time frame, Lady Sunshine – who was given that moniker because of her sunny outlook during a dark period for stocks – has run rings around the market.Thanks to some snazzy stock picking, she tells me that in the same six-month period her clients racked up gains of roughly 30% to 42%. So far this year, her clients are averaging gains running from about 20% to 30%,Ms.Lappin,who like every other money manager has had her good and bad years, said.

“I keep thinking we’re going to have a pause,” she said, “but countervailing forces are pushing stocks higher and I think the direction is still up for the rest of the year.”

One reason she thinks so – and she’s the only money manager I have come across who is using such reasoning for predicting higher stock prices – is her expectation of an impending shift in the political winds.

Ms. Lappin expects a brightening of political sentiments across the nation, what with “the country embracing the concept there will be a significant change arising from the midterm elections, with the Democrats gaining at least one House and possibly both.”

A Democratic win, Ms. Lappin argues, would make the populace feel better because it would signal a quicker end to the Iraq war and a windingdown of deficit spending. Likewise, she adds, it would strengthen the dollar.

Other countervailing forces she observes include:

* Oodles of cash on the sidelines, with trillions in money market funds during a strong economy;

* Expected GDP growth this year of 2% to 3%, though she sees some slowing in the second half;

* The strong likelihood that the Fed is almost at the end of the trail in its credit-tightening cycle.

She also thinks rising energy costs will be less disruptive than in the past because autos and appliances are becoming more energy efficient. In the 1970s, she points out, energy was 5% of GDP; it’s now 3%.

What about the big run ups in the price of oil and energy? Isn’t that disruptive to the market?

Ms. Lappin doesn’t think so. Those commodities are taking on a trading life of their own, which has nothing to do with the stock market, she believes. Commodity speculation by hedge funds, not supply and demand, are driving the price of oil and gold.The hedge funds are having a tough time making money in stocks so they are chasing momentum plays like oil and gold, she says.

(Some hedge fund managers agree with her, but a few believe the stock market will surely become increasingly worried and could turn appreciably lower should oil, now at $72.04 a barrel, begin to approach the $80 mark.)

Her three favorite stocks, each of which she pegs as a potential 50% gainer over the next 12 months, are:

* Sirius Satellite Radio ($4.34), a subscription-based satellite radio system with more than 10 million subscribers, an estimated 3 million of whom have joined the fold because of the hiring of shock jock Howard Stern;

* McMoRan Exploration ($16.34), a driller operating in the Gulf of Mexico and on the Gulf Coast that’s drilling lots of wildcat wells, which are producing many oil and gas discoveries;

* And T.D. AmeriTrade Holding ($17.70), a leading online discount brokerage firm that Ms. Lappin feels is a good bet for investors who like the stock market and that she says is selling at a good entry price.

A word of warning wrapup: While Lady Sunshine may indeed be on the money again, common sense would suggest some degree of caution, given a spurt in inflation fears, which could lead the Fed to drive interest rates higher than expected; a weakening greenback; much uncertainty as to where oil prices are headed; growing international tensions, and the lack of any announced Iraq exit strategy.