Red alert after worst week in a year

Woolies, Wesfarmers, banks all headed south.

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Last week marked the worst week in over a year for investors, as the Australian dollar slid to as low as $US0.96 on Thursday and the S&P/ASX 200 (^AXJO) (ASX: XJO) fell a total of 3.8%, putting the share market on high alert.

Prior to last week, the index had climbed roughly 27% in the past 12 months from just above 4,000 points to 5,180.8. During the week, it conceded 197.3 of those points amidst various global reports.

The Australian market wasn’t the only victim, as other markets around the globe also experienced heavy turbulence following suggestions from the Fed Chairman Ben Bernanke that that he would cut back on US bond buying when the US labour market begins to see sustainable improvement.

A report outlining Chinese manufacturing levels also displeased investors with a sharper than expected decline announced, causing mining giants Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP) to both finish the week in the red.

But it was the stocks that investors have flocked to over the last year that really led the market south. Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) slumped 2.7% and 4.5% for the week and Telstra (ASX: TLS) dropped 4.1%. Meanwhile, each of the Big Four banks also slid, including an 8.5% fall in value for ANZ (ASX: ANZ), adding to fears that the “bubble” that has been created could be ready to burst.

Anton Tagliaferro, investment director at Investors Mutual, said “I think it just shows some of the rallies we’ve seen in the last couple of months in those yields stocks and sectors was really just hot money going into a momentum trade and it’s just used the excuse of Bernanke’s comments, the Chinese PMI and Japanese bond yields to correct an overbought position.” Tagliaferro also added, however, that he expected the markets to correct themselves in coming weeks, as investors grew attracted to the ‘discounted’ blue-chips on offer.

Foolish takeaway

The old “sell in May and go away” strategy seems to have kicked in again this year, as the market’s rally has largely tapered off and investors begin to grow edgy. However, last week’s market decline has offered investors some very attractive opportunities. There are many quality companies to be found at discounted prices, such as Codan Limited (ASX: CDA) and Corporate Travel Management (ASX: CTD) that have demolished the market in the last 12 months. The market’s woes should be embraced by the investor, as it is in the down period that there is real money to be made.

As mentioned previously, a number of blue-chips have also become cheaper due to the market’s hesitance. If you’re in the market for high yielding ASX shares, then get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Ryan Newman owns share in Codan Limited.

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