When prognosticator Joe Granville (famous for his "sell everything" edict last January when the Dow Jones Industrial Average was till over 1,000) predicted a Blue Monday for September 28th, he may unwittingly have marked the bottom of the intermediate-term bear leg that carried the Dow under 820. It was, of course, an impossible prophecy, since everyone who knew in advance that the next Monday was to be a disaster would have sold on the Friday before. Not only was "everything" not dumped, but Blue Monday turned out to be a classically climactic, high-volume trend reversal -- down sharply in the morning, up sharply in the afternoon.

Following this grandstander's debacle, a brisk rally ensued. The market was in good shape to mount a late-fall, early-winter intermediate-term rally. But did the "Granville low" signal the end of the decline, and were stocks then poised to embark on the tear to DJI 2,000 that many have long been waiting for?

Possibly so -- particularly since, from the point of view that says the market does what it is least expected to do, it is the one move that no analyst considers possible at this juncture. But before we get carried away, some perspective on how the overall market stands is in order.

When the DJI hit the rocks at the end of September, the financial press dutifully reported that, at that level, it had touched a 16-month low. It will probably come as a shock to most Americans, including veteran investors, to learn that it actually had set a 32-year low, not at 807.46, but at 86! This is according to the "Constant-Dollar Dow," a statistic formulated by the Media General Financial Weekly, which corrects the Dow for inflation by factoring it against the January 1913 dollar. (Although this is a case of mixing apples and oranges since the Dow Average is not a dollar figure, nonetheless it's an effective portrayal of how stocks have performed.)

The Constant-Dollar Dow shows a stock market in tatters. Looked at in the light of the buying power of a dollar, common stocks have been in a steady decline since January 1966, the longest bear market in history. Even the Crash of '29, though extraordinarily steep, lasted less than three years. People forget that although the Depression lingered for a decade, stocks mounted a strong uptrend from 1932 to 1937, even as soup-kitchen lines were lengthening. Undaunted by the worst economic conditions of our time, the market was peering ahead well into the future. It can certainly do that again, ceasing to concern itself with interest rates and seeing a period of vigorous growth well down the line.

But first, there's cause for concern. The real Dow -- the unadjusted one we hear reported every hour -- has been in a broad trading area for 15 years, rebuffed time after time at the 1,000 level, but for the most part holding over 700 on declines. This could be an ominous top area that, once it breaks down, could carry the Dow as low as 250. Or it could be a long pause on the way to something big on the upside. Or it could simply remain in this state for many more years while such dubious collectibles as comic books and worthless stock certificates carry the investment banner.

Based on the Constant-Dollar Dow, however, this trading area is a fiction. Stocks obviously have not held even, but have done poorly in times of inflation. It is this bear market that must bottom out before a turn for the better, not the Dow reported on the nightly news.

Unfortunately, of the two Dows, the Constant-Dollar alternative shows less ambition. On a chart it gives the appearance of a beaten dog, tail between its legs. If a stellar bull market is to occur in the body of common stocks, this index is going to have to revive and become healthy. In so doing, it will mean that stock gains would be exceeding the inflation rate, and stocks would become the profitable investment vehicles many have been looking for over the past few years.

The Constant-Dollar Dow would have to decisively break a long-standing downtrend line that has been intact since January 1973. Any rally in the daily Dow that fails to break that downtrend is destined to be just another intermediate-term correction. Like energy trapped in a black hole, stocks cannot escape into the cosmos unless the Constant-Dollar picture changes dramatically.

If it does, it's good bet that stocks will take off on a binge. You wouldn't need a benign economy any more than the market needed reassurance in 1932. Indeed, such a rally ought to come as a surprise, since the market never cooperates with a consensus. Business conditions should be at their gloomiest, and as the Dow approaches 1,000 once more, doubters should predominate.

The sign that will show that Wall Street is at last a "True believer" will be the Dow's piercing 1,072. This penetration would set a new high in the modern Dow, complete he 1966-81 consolidation on the upside, and describe the first important major-cycle bottom in the Constant-Dollar Dow since 1949. A very ambitious undertaking to be sure.

Even though such a happy event seems unlikely in the face of struggling Reaganomics, if anything could bring it about, it will be the high-tech stocks. Even now a number of staid Dow stocks are becoming technology-oriented. Along with IBM, other Dow companies dipping into high-tech include United Technologies, AT&T, GE, Exxon, Du Pont, Eastman Kodak, Westinghouse, and 3-M. The hope for the future of our economy clearly lies once again in Yankee ingenuity. But this time, the new Industrial Age will come not in setting up steel mills and assembly lines, but in creating new lines of business undreamt of by our ancestors, and even by ourselves.

Thus, in view of the breakthroughs that have taken place or are about to take place in science and technology, it's hard to lend credence to the naysayers who are calling for a descent of the Dow into the 500s. One must keep in mind that stock prices have little relevance to business fundamentals at any given time. What was most appalling about the September 28th plunges in Tokyo and London was that these markets reacted to an utterance from someone who does not necessarily know more about stocks or business than any one of a hundred other market commentators. It's frightening to think that securities all over the world can rise and fall by flim-flam. And not just a little here and there, but in record proportions.

All of which proves that stock prices exist at the periphery of the economy, and their destiny as often as not is at the mercy of mass sentiment. As Joe Granville proved, sentiment is often wrong. One of the factors that discourage thinking that the market can push through to a new high at this time is that despite September's reversal, few stock owners were unduly worried. To truly end a bear market, everyone has to be scared, as happened in December 1974.

Though this fall the Dow dropped some 20%, it is estimated that about $5 billion in margined securities were being held in accounts with only about 40% collateral, which is about where most brokerage firms begin making margin calls. These holders were barely spared having to dump their holdings, an act of contrition (for being so stubborn) that might have flushed the bear market out once and for all.

It would seem, then, that after the fall rally, stocks ought to suffer another intermediate-term bear leg, carrying below 807 and really frightening the populace, before they can be considered ready to mount an assault toward DJI 1,072.