Regular readers will know that I can be a little contrarian at times. That is not necessarily the result of being curmudgeonly, although if you ask my kids I’m sure they would say that I am a grumpy old man. No, it is rather because my experience has taught me a couple of things about how the market reacts to what Donald Rumsfeld once called “known unknowns”, things that the market knows will happen but is unsure of what the effects will be. As those things approach, the crowd-sourcing nature of markets ensure that conventional wisdom is priced in, and the power of momentum means that the move is often overdone. That can sometimes set up a trade with a controlled or minimal downside and, on the off chance that conventional wisdom is wrong, significant upside potential.
There is just such an opportunity right now in several oil stocks, and my choice for trading the situation would be the French oil company Total S.A. (TOT), whose one-year chart is above.
The known unknown here is the market’s concerns about the effects of the U.S. sanctions on Iranian oil that were announced after President Trump pulled out of the nuclear deal between that country and the international coalition of signatories. We know that Iran is a significant oil producer and that the proposal to not just prevent U.S. companies from doing business there but also punish foreign companies that do presents a potential issue for a company like Total.
To be sure, Total…