Are we in a mini panic that could drive stocks a lot lower?

Well, hang on to your hats, folks, because that's the way it looks to Ned Davis, 34, the well-respected partner and market-timing expert of J.C. Bradford, a brokerage firm based in Nashville. Davis, who boasts a large institutional following, is not a man to be taken lightly.

His words are scary: "No one should own a common stock at this point in time."

Davis, who's essentially been neutral on the stock market since early 1968, tells me the market's on the verge of a mini panic that could knock down equity prices another 100 points (or nearly 13 percent) in the DJI average within the next three weeks.

For starters, he points to the market's current critical trading zone of about 780 -- which was recently broken. Many technical analysts (or chart watchers) regard this level as an important support zone of the market; any decisive break in this figure -- say 15 to 30 points -- without any immediate rebound could reflect a good deal of nervousness and provoke a big selloff.

The last two times the market reached the 780 level -- in November 1978 and November 1979 -- stock prices held firm. And in both cases, that 780 figure proved to be the turnaround point.

Now, however, Davis thinks the figure will break. Part of his premise is predicated on the record Big Board margin debt (nearly $12.5 billion) and the record number of margin holders (1.03 million). When you buy on margin, you need put up only 50 percent in cash. But in the past six weeks, equity prices have dropped about $150 billion in value; that's about 15 percent in cash. But in the stock valuation of about $1 trillion. So a lot of those margin buyers are a step away from quicksand.

Davis figures that roughly $5 billion of the margin debt is on the verge of being called in. "A breach of 780 would be all that's needed to create a snowball effect and tremendous downside damage," he says.

Aside from the sizable margin debt risks and the question of whether the DJI will hold at 780, Davis argues that the market is saddled with several other major headaches that easily could bring the DJI down to its 1974 low of about 570.

One of Davis' chief arguments is that bond yields are out of whack with stock yields. For example, bonds yield about 13 percent on triple-a corporate instruments; the yield on the dow-type stocks is about 6 1/2 percent. As Davis sees it, for the DJI stocks to remain a viable alter native to bonds, the yield would have to reach a level of 9 percent. And that kink of yield (which would shrink stock prices) would push the DJI below 600. In fact, that wicked figure is precisely what Davis is expecting by October.

Such a figure -- which would represent havoc in the market -- seems outrageously low to me, and I questioned whether he simply was talking about 570 for the publicity value.

Davis cooly defended his case, a substantial part of which is based on his view that inflation soon will be giving away to deflation (a period marked by breaking prices, including housing, and high unemployment).

"Look at what is happening to commodities," he said. "Gold's gone from $875 (an ounce) to $525, silver from $52 to $27 (after the interview it went even lower), and copper from $1.45 a pound to 96 cents. These drops are more than just technical corrections; they're signifying a change which a lot of people don't yet believe . . ."

If we are entering a deflationary stage, as Davis suggests, there are three obvious investments to avoid: real estate, stocks and commodities. In fact, Davis is telling clients that "it's curtains for all three."

Davis' forecast, as you can see, adds up to a lot of pain and suffering. And things could get even worse along the way to his predicted 570.

If the Carter administration's recent anti-inflation program fails to do the trick (as many expect), it will be forced to take even more strigent steps. And these could drive interest rates even higher.

But what does the average investor do to survive?

Davis believes the best -- and only -- investments at this time are money-market funds and Treasury bills. "Cash (or liquidity) is king," he says. "And when Grade-A bonds come down, they'll be a once-in-a-lifetime buy."