Anyone tallying the number of bids and offers for all 121 CME Case Shiller futures (11 regions * 11 expirations) should notice that over the last few weeks there’s been more bids than offers. (Today we’re at 93 bids x 73 offers. That number of quotes is down from all 121 x 121 during the spring but up from 40 x 40 during the late summer). Does this reflect more bullishness or is there some other factor at work?
My sense is that it’s more of the later. I’d volunteer that I work to make sure that closes don’t drift too far away from a range in which I think a contract “should” trade. So, for example, I entered five of today’s bids in a series of SDG contracts (X13,X14, X15, X16 and X17) a) to buy contracts, b) to invite others to post offers, and c) to raise the closing price.
Recall that the close is calculated as the last trade, unless there’s a higher bid or a lower offer. In contracts where there have been infrequent trades, and where the last bid is either very stale, or none exists, the closing price won’t change (absent lower offers). Over time in a rising market, the close then will tend to lag my sense of the range where a trade would be more likely to happen. Higher bids, as we have today, will lead to higher closes, and hopefully more information in the time-series of closing prices.
Note that this is the same situation that the home price contracts were experiencing in 2008-09 but in reverse, that is, in a declining market. In those days, the consensus on the “expected” clearing level for the next trade kept dropping, but without active market making (and the posting of lower offers), closing prices remained very high.
Anyone thinking that the closing prices are still out of line is welcome to post new bids or offers. The CME protects against manipulation of the close (e.g. a last minute off-market quotes) so closing prices and margin are not distorted.
So, my sense is that as long as the market continues to rise, you should expect to see more bids than offers.
I’m happy to discuss