To reach the Dragon Punch, you must have all Heart Tanks, power ups, and Sub-Tanks. When you reach the two ladders, one unreachable. Lead the bats to the ladder and crystalize them to reach the top ladder. Then use Speed Burner on the first set of spikes and air-dash between the next spikes.
Go to another set of spikes. Charge up Speed Burner again and air-dash the first set and drop to second set and Speed Burner to the left to reach the 1-Up. It may take several tries, but you'll make it. Slide down the left wall and you'll find the Dragon Punch capsule. You MUST have a full energy meter to get this capsule.
To execute the Dragon Punch, press Forward, Down, and Down-Forward and the fire button.