Holmes comes home. Watson is glaring at him. She would like an explanation for Teddy. I would like an explanation for Teddy not being given a name in the last scene. Do you think I liked calling him "the kid" all the time? Watson also complains about the hidden cameras, of which she found three. He explains that the Brownstone is his sanctum sanctorum so naturally he's got some security. She says he sent children to look for him at fancy hotels, which she considers reckless. And also, why hotels? The answer is that M has fancy driving gloves and shoes in the video. So he's rich and new in town. And on the note, there was a scent: high-end hand soap and a higher-end mint shampoo, both of which are used in hotels around town. Question: why is a bald man using shampoo? Holmes brings up Irene Adler and Watson realizes that M killed her. Holmes solemnly says, "I have no intention of capturing M. I have every intention of torturing and murdering him." Nice! It's a twist!
After the commercial, Watson is outraged, both at Holmes's plans and his calmness. He explains that he has a calm exterior but is roiling inside. He's been planning this for one year, six months and twenty-two days. He and Irene had been together for seven months. As he talks, he collects doodads and tools from around the place. He says that his drug use had been recreational before her murder. But after Irene, he lost control. He used various stimulants to stay awake for the chase, and then he turned to opiates when the trail went cold. He has a butterfly knife! And an icepick in the fireplace. He says there's a frightening clarity to his thoughts. Watson says she didn't keep him clean so he could become a murderer. Then she realizes he wanted her away from the files because she'd see the name "Irene Adler" in there. She says she won't follow him, but she will call Gregson. He says she should do as she feels she must. Then he leaves with a bag full of murder tools. Which is practically any kind of tool, really.
Holmes finds Teddy and offers money. "Tell me everything you saw today." The scene ends, but we are to assume that Teddy does so.
A woman sits on a couch watching television. Her tiny dog starts barking. She asks, "What is it?" and gets up to investigate. This is totally unrealistic. The actual response is "Shut up, you stupid little dog! There's nothing out there!" I know this for a fact, because I have said exactly that several times during this episode. But now the dog is curled up next to me on the couch and is being very sweet. Anyway! On the television, the dog was right. The woman follows it carefully and sees it eating a hot dog on the floor. Her front door is open! She backs up toward a phone. And then she's grabbed from behind by M.