Dow 20,000 here we come: "This market is going higher," Schatz says

With Nasdaq 5000 seemingly a foregone conclusion, market pundits are already looking ahead to the next big round-number milestone: Dow 20,000 is "definitely" going to happen this year, says Paul Schatz, president and CIO of Heritage Capital. "And if we get there we're going to go above it. "

While Dow 20,000 may seem like a big number, it's less-than 10% from current levels and Schatz believes the bull market, while aging, still has plenty of life left in it.

"The bull market is old [and] wrinkly but it's not dead," he says. "And usually the end is where you get the biggest 'woosh'" higher.

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Supporting the bullish case, Schatz says, is the recent rotation out of defensive sectors like utilities, REITs and other 'bond substitutes' into growth areas such as consumer discretionary, semis and biotech.

Indeed, the Consumer Discretionary SPDR (XLY) is up about 10% in the past six months vs. 8% for the Vanguard REIT ETF (VNQ), a 6% rise for the Dow Utility Average and a 5.4% rise for the S&P 500. The shorter the time frame, the better the outperformance as the XLY is up 5.4% year-to-date, about double the gains of the S&P 500 and VNQ, and versus a decline of nearly 4% for the utility index.

And while some are asking whether the move to retail and other discretionary stocks has already played out, Schatz believes the rotation from defensive to offensive-oriented sectors is still early days.

"Every year we leave the consumer for dead and it's a top of the charts right now," he says. "There's some really good bullish leadership. Transports are close to coming back; they're percolating for a big move."

As with most market participants, Schatz is watching the Fed very closely and believes they will tighten in late 2015 or early 2016. And while that might cause some short-term selling, he thinks it will actually power the final phase of the bull market as capital from Europe and Asia floods into the dollar, Treasuries and, ultimately, big-cap U.S. stocks. "The final glorious rally is going to be driven by the greenback -- the good old U.S. dollar," he says, offering an alternative to the prevailing fears today about a strong dollar hurting S&P 500 earnings growth, as evinced by warnings from Hewlett-Packard (HPQ), Caterpillar (CAT), Wal-Mart (WMT) and many others.

Between now and then, Schatz advice is "buy the dips," suggesting a 3-5% sell-off is probably overdue. "If you want to sell the rips, be my guest, but this market is going higher."

Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

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