My name is Michael Hewson from spread betting firm CMC Markets and today I'm going to look at the FTSE 100, FTSE 250 and the S&P 500, especially in light of the volatility that we've seen over the past week or so.

So this is the FTSE 100 futures contract not the actual index. And the reason I've shown you the futures contract is because of this large spike down here we saw last Thursday when the Dow dropped 1,000 points in the space of a day before recovering very, very quickly. Now over the past 12 to 18 months, we've seen a significant rise in the FTSE, from its lows around 3,400 to the highs around 5,800. And net we've seen now a significant sell off.

Now the question a lot of investors are asking is, is this a correction or is this part of a more sustained sell off?

Well let's have a look at the charts to get some sort of indication as to whether or not this is a sustained sell off, or this is just a small correction and an overall up move.

Well I've drawn a couple of lines on here. First and foremost we've got Fibonacci retracements. And you may notice the correction lower managed to hold above the 38.2% Fibonacci retracement of last year's up move to the highs earlier this year. It's also managed to find an element of support through this trend line here. Okay, yes, we've basically spiked below it, but there was not enough momentum within the market to sustain the down move. Now we've also got the 40 week moving average which also equates to the 200 day. And we're around about that level at this point. And then this is quite important. We need to stay above this support level here and the 200 day moving average for this to be just a small correction to the overall up trend. If however we drop below these key levels here, then we could see a broader correction overall.

But let's not just look at this particular index. Let's also look at the FTSE 250 because that's much more of a benchmark of UK plc as I see it. This is UK plc if you like. FTSE 100 is pretty much a global index. It's not as relevant to the UK because of the predominance of mining stocks within the FTSE 100 and banking stocks. It's not UK centric as such, whereas the FTSE 250 is much more UK centric. And I think that's important.

So again we've seen a significant low around 5,490 in 2008/2009. We've seen the rally up to 10,773. Now this is not a futures contract; this is the actual index itself. So you won't see the same sort of spike on this that you saw on the FTSE futures contract. Again we found support around the 40 week or 200 day moving average. And we've also found the same element of support around the 9,250 area from these lows through here. So again support seems to be holding on the FTSE 250 as it is in the FTSE 100.

So let's now try and roll that across the Atlantic to the US. Let's look at the S&P 500 and you'll see a very similar scenario unfolding.

The difference here is that the 200 [week] moving average has so far capped the S&P 500 on the topside. So that could be fairly significant. Again we've got the lows of 666.8 to the highs of 1,219.8. We've since fallen back. Now obviously the decline in the US index has happened on Thursday. So this spike down here is very significant. But look where it bounced. It bounced right off this trend line here, around about 1,063 as it is at the moment.

So again a similar scenario unfolding with respect to the equity markets. If we can hold above these significant trend lines, then this is probably just a correction. If however we break below these significant trend lines, we could see a broader sell of across the board.

Thank you very much for listening. My name is Michael Hewson from CMC Markets. This is CantosCharts.