Mounting fears that Santa would be a no-show on Wall Street this year appear to be vanishing rapidly. In fact, after gains of roughly 5% in the major market averages in recent weeks, a couple of respected Wall Street veterans tell me there’s more good news on the way – more specifically, a rousing rally arriving just about the time Santa Claus does.

This annual rally, which is moderately reliable but far from absolute, traditionally runs from the day after Thanksgiving through the end of the year. Market gains during this period often range from about 2% to 5%.

The chief investment strategist of D.A. Davidson & Company of Great Falls, Mont.,Fred Dickson,says,”With the market as resilient as it is, Santa is not only on the way; he may already be here.”

An intriguing sidelight would be the public’s participation in such a rally. The latest figures show that individual investors, over the past four weeks, have snapped up about $15 billion worth of stock mutual funds. Normally, the actions of individual investors are thought to be a solid contrary indicator since they’re generally regarded as “Wall Street’s dumb money”on the theory that they’re invariably wrong.

Not this year, at least not according to Mr. Dickson and the chief investment strategist of Oppenheimer & Co., Michael Metz. Based on their outlook, the supposedly dumb money is turning out to be the smart money this year.

Mr. Metz, who expects about a 3%-4% year-end rally, looks for the abundance of money on the sidelines, especially at the nation’s hedge funds, which boast more than $1 trillion of assets, to be the chief sparkplug.

In the case of hedge funds, most of which have underperformed the market this year, Mr. Metz observes that time is running out for them to turn the tide and achieve the kind of appreciation they need to generate those lucrative year-end fees. Accordingly, he looks for hedge fund managers to jump aboard the market bandwagon in the next few weeks, an event he thinks could shortly turn the stock market into a casino. The situation boils down to the fact, he says, that “they’ve got to be in there before the lights go out on December 31. So the bets have to be placed now.”

Yet another plus is said to be “an awful lot of shorts” (those investors who bet stock prices will fall). As such, Mr. Metz figures there will be an inevitable year-end short covering rally driving stock prices even higher.

Still another catalyst, as he sees it, is the likelihood of an additional influx of foreign money into American stocks and bonds.”And I believe a lot of it will come into the market in December,” he says. In September, foreigners poured an estimated $24.6 billion into American stocks, their highest monthly purchase since February 2000.

Describing every stock player as “a closet trend follower,”he believes as far as the market goes,”there will be a desperation to get in” to stocks.

So what’s the best way to play his projected rally? The biggest bargains, he says, are the big blue chips, which have lagged the market all year. It means, he says, “you don’t have to compromise on quality to participate.”Three of his top picks are Microsoft, Procter & Gamble, and Pfizer.

Mr. Dickson, a former strategist at Goldman Sachs, expects a 3%-5% rally between now and the end of the year. The market internals look very good, he says, pointing to fairly heavy volume, solid market breadth (a reference to the number of stocks going up, versus those going down), and the growing number of stocks in a technical uptrend.

Fundamentally, he also sees a number of pluses, among them good inflation numbers, a bevy of positive comments from retailers on the outlook for holiday sales, falling yields on competing long-term bonds, and big economic stimulus from at least $100 billion worth of expenditures to rebuild the hurricane-torn Gulf Coast.

“The wall of worry that was built up in September and October is fast disappearing,” Mr. Dickson says.

His enthusiasm for the market is such that he has just raised his equity ratings in investment portfolios from 65% to 75%. The remainder is 15% bonds and 10% cash.

His top picks for the Santa Claus rally are Pioneer Natural Resources, Burlington Resources, United Natural Foods, EMC, and Citigroup.

Meanwhile, yet another solid market plus is served up by Charles Biderman, president of TrimTabs Investment Research of Santa Rosa, Calif., who cites very positive liquidity trends. In particular, he points to an explosion in new cash takeovers averaging $2.5 billion a day, a torrid pace of new stock buybacks averaging $2 billion daily, a modest $350 million a day of insider selling, and a slow new issue calendar projected to run under $500 million daily.