To a lot of market observers, myself included, it seems illogical to believe the stock market can barrel ahead in the face of higher than expected interest rates, especially if yesterday’s horrific train and bus bombings in London are indicative of more terrorist activity ahead.

But that unlikely scenario – rising rates, rising stocks – is precisely what’s being projected by Charles Biderman, president of TrimTabs.com, a well-regarded, institutionally oriented online research service that focuses on liquidity trends (the amount of cash available for stock purchases).

He could be right, of course, but for his bullish scenario to become a reality, investors will have to confront a number of significant obstacles. Chief among them:

* The Fed’s failure last week to flash a signal that its latest credit-tightening cycle was nearing an end following its ninth consecutive hike in short-term rates.

* The economic implications – including inflationary pressures – of roughly $60-a-barrel oil, coupled with OPEC’s recent declaration that it sees no need to open up the spigots and widespread forecasts that $70 to $80 crude is just around the corner.

* Swelling signs of an overheated housing market, with clear bubbles in a growing number of areas.

* Renewed terrorism concerns following the London bombings.

Common sense would seem to suggest these are legitimate worries that could temper any sustained market advance at this juncture. That’s especially the case if there’s no letup in rate increases, which is precisely what our bull sees, given signs that the economy continues to gain momentum. Among those signs: first-quarter GDP growth ran at an annual rate of 3.8%, which was significantly higher than the Commerce Department’s original estimate of 3.1%, and take-home pay year-to-date rose a staggering 10.8%.

As a result of this economic vigor, Mr. Biderman thinks it unlikely the Fed will halt its rate boosts anytime soon. The general view calls for a few more rate hikes before year-end, with the federal funds rate wrapping up 2005 at 3.75%, versus its current 3.25%. But Mr. Biderman thinks 3.75% is too low, and that a year-end close above 4% is far more realistic.

Why so? Because, he observes, the underlying economy is so strong that it’s continuing to grow – and picking up speed – despite high oil prices and rising rates.

The “economic boom,” as he describes it, is one reason he’s so gung ho on the market. Another is the substantial and growing shrinkage of shares. He notes, for example, that over the past month, corporate America has shrunk the float of shares (via cash acquisitions and buybacks) by about $1.5 billion a day.

Mr. Biderman figures once the rest of the world realizes that the American economy is continuing to grow regardless of $55-plus crude oil and rising short-term rates, stock prices could surge. Moreover, he believes if crude prices continue their recent fall and the S&P 500 climbs above its March high of 1,225 (it’s presently at 1,191), “big inflows from momentum players could set the market on fire.” His outlook for 12 months from now is that the S&P 500 will approach 1,300 and the Dow (now at 10,252) will top 11,000.

Furthermore, as long as companies remain big stock buyers “and you have more money chasing fewer shares, the market,” he said, “is not going to go down very much.”

Another reason he’s enthusiastic about the market is the appearance of an excellent contrary indicator – the pessimism of small investors, who, he notes, are basically out of the market and investing in real estate. Indicative of this, he points out, stock-oriented mutual fund inflows are running at the slowest rate since the early 1990s. Current inflows are about $1 billion a day, versus $5 billion in early 2000.

As for yesterday’s London bombings, Mr. Biderman said, “You can never take the loss of life lightly, but there shouldn’t be any long-term effects.” The market, he went on, invariably rebounds after such catastrophic events, as it did after 9/11. In other words, he said, “The world and its stock markets will go on.”

Any final thoughts? I asked. His response: “Just that all signs are ‘go’ for the stock market.”