How does the CME post closing prices on 11 home price contracts (the 10-city index and the 10 individual regional prices) over 10-11 expirations so quickly after the close? They have a rules-based methodology that they follow, that sometimes generates some odd-looking results.
One of the challenges of a thinly traded futures contract is that closing prices, particularly on the more distant contracts, may appear “out of whack”. For example, the 25-point higher closing price (relative to other expirations) for the San Diego Nov. 2012 contract (as of 4/30/2010) may not be due to any fundamental reason. The CME is just following their methodology of calculating the “closing price” based on either the: 1) last trade, or 2) a subsequent higher bid, or lower offer. Higher bids in the May 2012 contract or the Nov. 2013 contract, or lower offers on the Nov. 2012 contract would “smooth out” this closing curve, but as there is no open interest in those expirations, quite a bit of time may have elapsed since the closing price changed.
(Qualifier: I’m not saying that May 2012 is “too low” or Nov. 2012 is “too high”. I’m just highlighting the differences between the two to explain the CME methodology to posting closing prices.)
The kinks in closing prices (such as those in the displayed San Diego contract) become more pronounced when the market has trended in one direction, but where trading (or quoting) has not kept pace with market moves. More frequent trading and/or higher bids/lower offers will more likely keep closing prices closer to “reality” and eliminate the kink we see in this graph.