There are two stories

Stocks are said to be rallying because of a decrease in the libor rate. What is the libor rate? It is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). LIBOR will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits. It is roughly comparable to the U.S. Federal funds rate. In other words it is the European equivailant to the Fed funds rate. Actions being take in Europe have caused this rate to drop and it is telling the traders that the credit freeze in Europe is starting to thaw.

The First Story : The Credit Crisis
This leads me to the first story. The credit crisis. We are in this mess because the meltdown of the financial system has stopped lending between banks and therefore lending to corporations and to the consumers.
Relationships that existed between banks, insurance companies, and investment banks where leverage was accepted because of the apparent backing of insurance companies has lead to a mind boggling array of twisted financial relationships.
It reached a point where none of these financial institutions could trust each other and all dealing stopped. That is the credit problem. They did not know who to trust and stopped dealing with each other.
This brings us to last week where the governments of the world essentially took over the role of the insurance companies and started to back a signifigant portion of the financial transactions to allow the banks to trade with each other.
This is from last week:
1. The US treasury announced this week that it would directly invest up to $250 billion in numerous financial companies by purchasing preferred stock in the open market. The unprecedented move was the latest measure undertaken by the government in an attempt to soothe the ailing financial markets. The Fed will initially invest in Citigroup (NYSE: C), JPMorgan (NYSE: JPM), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Bank of New York Mellon (NYSE: BK) and State Street (NYSE: STT).

Notice that the Treasury and the Fed will use the above institutions to unfreeze the system. Notice also that the treasury is taking an equity position in these comopanies. This is serious stuff. They are saying thats it we are taking a stand here.
This AM from CNBC:
Offering stocks a boost was a drop in the cost of overnight lending rates between banks. The closely watched London Interbank Offer Rate, or Libor, slipped across the board, with the overnight rate dropping to 1.51 percent, while the 3-month rate declined to 4.06 percent.
Investors will be closely watching Federal Reserve Chairman Ben Bernanke's remarks to the House Budget Committee at 10 a.m. ET. He is expected to say that we may need a second government package to stabilize the economy, according to prepared remarks.
At 11:30, Treasury Secretary Hank Paulson will speak, offering details of the application process for the capital-purchase program.
The market rallied on news that Libor slipped. This indicates a twaing of the credit freeze in Europe.

So in the near term the market is watching the credit frezze and any good news will produce a rally.

The second story: the Recession
From last week: Consumer confidence
U.S. consumer confidence suffered its steepest monthly drop on record in October, a survey showed Friday, as the worst financial crisis since the Great Depression sent shocks waves through the economy.
The Commerce Department reported Friday that construction of new homes and apartments dropped by 6.3 percent last month, a much bigger decline than the 1.6 percent decrease that had been expected. It pushed total production to a seasonally adjusted annual rate of 817,000 units. That's the slowest pace since January 1991, a period when the country was in a recession and going through a similar painful housing correction.
Well you get it, the news is telling you this may be the great depression.
When the lousy numbers come out on the economy the market tanks.
Last week was a tug of war between the two creating massive volitility.

Those are the two stories what I will do about them with my trading will be the subject of future blogs.
However, the basics are that when I buy the XLF or the UYG I am betting that the Government wins the battle and the financial system will be saved. What you will see me do is when there is bad news in this area I will be a buyer and when there is very good news I will be a seller. I have predetermined area that I am looking to buy and sell and will try to use the news to my advantage. My premise is that the system will be saved.
The same thing applies to the second story I will be buying when the economic news is bad and selling when there is a ray of hope for the economy. Again I predetermined areas that I am looking at. But I essentially will be looking to bet on the economy recovering. However there will be times when I will take the other side. When I do I will note in this blog.

Overall I am bullish now short term and think that both stories will tend to get better over the next few months. ....Ihe beat goes on