The twists and turns of 2014 may be revealing about what lies ahead for the New Year. The stock market successfully navigated through another year of dramatic headlines but it was not simply that the market withstood numerous instances of abrupt and reactive selling. More impressive and arguably more supportive for my outlook were the swift revivals in upward momentum in the weeks following the market’s most notable selloffs of 2014. Following the declines in February, July, October and December, the DJIA and other major stock averages climbed to record levels in short order while establishing longer-term support at incrementally higher points. October’s panic selling yielded the most dramatic pivot of the year, but it was December’s price and sentiment vacillations that may have had the most pronounced impact on my predictions for 2015. Below, I present my outlook, in which I set a minimum target for the DJIA of 20,000 and anticipate a good year for mid-cap and small-cap stocks.

1.       There are technical indications that the bull market may be moving toward its final stages. I believe December’s market trends reflected some surrender of defensive or bearish postures among sidelined investors. The market’s indefatigable resiliency and its many record-setting feats in 2014 likely have begun to gain the attention of heretofore recalcitrant investors. This has yet to spur urgent buying, but improving investor psychology is evident in the market’s springboard recoveries and its unrelenting treks into unchartered territory. The up-volume versus down-volume showings after the declines in mid-October and mid-December, accompanied by broad sector participation, have established a technical foundation for launching a phase of accelerated price momentum without the imminent risk of runaway speculation. I believe this means the DJIA could rally to 20,000 or higher before encountering a correction of 10 percent or more.

2.       It has been my contention that this market cycle is the third installment of a bull-market trilogy that began in 1982. The previous two ‘installments’ in that trilogy were the bull markets of 1982-1987 and 1988-2000. Each of these cycles ended climactically, with a substantial portion of the gains coming in the late innings of the cycle. The climactic buying potential of the prevailing bullish cycle may eclipse the prior two bull markets with  the biggest buying surge in the last 40 years. The genesis of such a potential has begun and it could appear in the first half of 2015 in the form of more aggressive buying and relatively brief and shallow corrections. I believe investors should consider adopting a more growth-centric strategy with an emphasis on capital appreciation.

3.       Market watchers are mostly bullish for 2015. However, a recent CNBC survey found that the consensus view is for an annual gain of less than 7 percent. I believe that is too conservative. In fact, as I monitor price targets among Wall Street analysts in a sampling of stocks that have buy ratings, I find that in many instances industry analysts remain guardedly optimistic. This implies the environment for earnings to beat Wall Street expectations in 2015 is very good. Separately, Federal Reserve Board Chairperson Janet Yellen recently reaffirmed the Central Bank’s commitment to transparent monetary policy. Reducing, or eliminating altogether, monetary uncertainty continues to be a critically important bullish underpinning for the stock market that could amplify the market’s upside prospects. Another uncertainty that no longer looms large for investors is the timing of a 10 percent correction. That may have been essentially resolved with an October stock plunge that sent the CBOE Volatility Index (VIX) soaring to near panic levels. It is less likely now that investors and market timers will be fretting about another 10 percent anytime soon.

4.       I have established a minimum DJIA target of 20,000, which would approximate the DJIA’s return in 2014. My assessment of the technical landscape, coupled with the probability that we are in the late stages of this cycle, where buying could intensify, places my anticipated yearly target closer to 21,500. This target is established on an entirely technical basis that considers the performance of the DJIA based upon the prospects for each of its 30 components over the next 12 months. I expect the yearly lows to hold in proximity to DJIA 17,000. Therefore, even with the gains realized in 2014, the market’s risk/reward ratio is attractive as the New Year begins.

5.       Medium and small capitalization stocks lagged the S&P 500 at midyear, but reclaimed their upward momentum immediately following the October 15 selling rout. The Russell 2000 Index (RTY) outpaced both the S&P 500 (SPX) and the Russell 3000 (RAY) by more than 100 basis points from mid-October to year end. The advance/decline and volume trends in medium and small cap stocks were impressive in the fourth quarter and these burgeoning bullish characteristics bode well for their outlooks in 2015. The relative strength strides of the RTY may also reflect investor willingness to accept more risk for more reward. This psychology is often evident in the late stages of a bull market cycle.

6.       Financials are technically poised to lead in 2015. Leadership among the financials should bode well for the stock market since this sector historically has benefited from both heightened investor activity and more investment banking deals. This group in nicely represented by bullish trends among asset managers, diversified banks, insurers and related information services.

7.       Although it may be tempting to aggressively buy downtrodden energy stocks, the investment environment is shifting toward more aggressive earnings growth sectors. The more timely opportunities in 2015 are likely to be in aerospace/defense, airlines, auto parts, consumer discretionary, consumer staples, financials, health care, information technology, leisure time and recreation, manufacturing, media  and entertainment, semiconductors, shippers, software and specialty chemicals.

Gene Peroni Jr. is a senior vice president and portfolio manager at AAM. His daily podcast and monthly Peroni Report offer technical perspective on the equity markets. He is a regular guest on CNBC and Nightly Business Report and has provided commentary on MarketWatch Radio and CBC RadioNetwork.