The bear appears when the Market Makers change their behaviour (polarity) from accommodating to opposing/offensive. Rather than settling for giving fills and collecting commission, vicious rabies comes over these punks.
While in a regular market the breaks are operating well (see previous blog entry), mean reversions are a common place; the play accordingly is a return to market neutral, thus stretches can be defied and the hedging direction points outwards, away from the mean. This market has a fair price in mind, and shall make its way back to equilibrium.
After the paradigm / polarity shift, the Market Makers work on stretching the Market away from its means as far as possible: suddenly the trading direction becomes away from the MMs, and the hedging direction would be against a move back to the MM zone. Overall this is the fight against the normal, the neutral, the balanced, and the objective seems to be not letting the Market settle. If it seems idle, that’s the calm before the storm. Volatility becomes virtually uncapped. The only thing to stop the bear-train is running out of steam. This is when they allow the Market to fall back to reload – and occasionally change direction.
A regular bear market goes on for about 6 months, so this thing is going to be here to stay for a more months, i.e. September.
I know you are curious of the wave structure…