The strong market rally that ran from December through April provided plenty of stocks that scored big gains.
Texas Capital Bancshares (TCBI) was one of those stocks.
This Investor's Corner column — part of an occasional series called "Spotting the Buy Point" — explains how you could have played it.
Texas Capital, a regional bank, was a bit tricky since it broke out before the Dec. 20 follow-through day that confirmed the rally attempt. Sometimes a leading stock will break out a little ahead of a follow-through day, so Texas Capital's action is actually a good example of something that you should be watching for.
The stock cleared a 29.08 buy point from a cup-with-handle base in the week ended Dec. 2 1. It finished the week right at that key level.
Note how weekly volume increased from the prior week, as you would prefer to see with any breakout 2.
Daily volume was also pretty good on the actual breakout day, Dec. 2 — 33% above average, a little below the 40% or more that's ideal, but not by that much. And the action on the next day helped make up for it.
Sometimes when upside turnover is a bit light on the breakout day, it'll step up in the next session. That's what happened with Texas Capital.
Another tricky aspect of Texas Capital's breakout was its decline following its breakout. The stock fell as much as 5.4% below 29.08, as it tested its 10-week moving average. The drop wasn't enough to trip IBD's 7% or 8% sell rule, which calls for cutting your losses when they reach that level. But the decline still was significant enough to test investors, especially given that IBD's outlook remained locked at "market in correction" throughout the first half of December.
You could have opted to sell Texas Capital in early March 3, when the stock's advance beyond 29.08 reached 20%. It is a smart strategy to lock in profits at 20% to 25% and move on to other opportunities.
But if you had decided to sit tight, you still would be doing OK at this point. Texas Capital is now about 41% beyond its buy point.
