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Dow 20,000? Here’s what it would take

Talking Numbers

Could we see the Dow move up another 25% to 20,000 by the end of 2014?

You might be in a bubble if people start talking about the markets making 25% gains a year after it's up 23%.

With the Dow Jones Industrial Average hitting breaking above 16,000 this year, pushing to the next psychological level may seem in the realm of possibility. But is it?

(Read: US stocks rise as housing reports lift builders; Nasdaq clears 4,000)

The last time the market gained even higher returns in a year after it was up more than 20% was 1928. We all know what happened at the end of the following year.

To be sure, though, there was a run of three straight years of returns higher than 20% back in the 1990s, but each year saw lower and lower gains.

Year DJIA Gains
1995 33.5%
1996 26.0%
1997 22.6%
1998 16.1%
1999 25.2%
2000 -6.2%
2001 -7.1%
2002 -16.8%

As the table above shows, for the five years from 1995 to 1999, the average annual return was 24.7% on the Dow. But, that was followed by a bubble burst: From 2000 to 2002, the average annual loss was 10%. The Dow closed 2002 right where it was in March 1998.

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So, is this time different – can we see the Dow move up another 25% to 20,000 by the end of 2014?

Don't count on it, says CNBC contributor Gina Sanchez, founder of Chantico Global.

"In 2009, that rally was underpinned by improving earnings," says Sanchez. "But, the past year has largely been underpinned by a P/E [price-to-earnings ratio] expansion. Earnings haven't kept up. They've been good, but remember that earnings expectations were downgraded quite a bit last year. So, we're going to go into a fourth-quarter earnings season that could be a bit challenging and we're not facing the same kind of rally. So, this rally could be getting to the end."

Steve Cortes, founder of Veracruz TJM, says the technicals agree with Sanchez's assessment.

"Do I think we're going to get to 20,000? I absolutely do – eventually," says Cortes. "But, for the foreseeable future, will we get there? I don't think so."

For the rest of Sanchez's fundamental analysis and to see Cortes' charts on the Dow that lead him to think there could be a significant pullback ahead, watch the video above.

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