One More Junction

Stock market is at another junction point. We had a great rally which started in August. As many, I didn't like this rally initially, because of correlation of stock market to commodities and reverse correlation to dollar. But rally just somehow felt right. Couple more factors fueled this rally: elections with expectations of GOP big win and promised by Fed QE2.
Elections didn't disappoint. GOP shouldn't celebrate much though. People don't vote for, they vote against. In this case they voted against obvious socialist tendencies of the administration: healthcare reform (which is not going anywhere), attacks on big businesses, Wall Street and stock market in general. They did not vote for neocons, they did not vote for social conservative agenda, they actually didn't vote against stimulus and even the horror of horrors: higher taxes for rich.
QE2 didn't disappoint either. Uncle Ben even slightly exceeded expectations. I don't have much hope for it, but it's the theme of a separate article. Anyway, QE2 is a long term story. We need to know what to do now.
And it's complicated. If rally was mostly caused by elections and QE2, then market is going down: sell the news. If it was driven by stupid idea that dollar is going to be worthless and we are going to have hyperinflation, then it should continue. Of course, it's almost the end of the year, and various window dressing strategies should come forward. Most funds should be buying stocks, to make an impression that they participated in the rally.
Metrics don't say much. Technicals are great, but they are always the best at the top. Fundamentals are improving, but they still stink. Sentiment is about neutral.
We had several sharp corrections during the rally. That's how it should be: biggest days up happen in bear markets, biggest days down - in bull ones. But last two days are different. We are going down bit by bit, which is more consistent with the top.
I'm not sure it's a top. We might as well have the rally continue into the year end. But it's a possibility. So I decided to lighten up a little bit, it's time to get more careful.
Today I closed my position in Cisco (CSCO). Reason: stock was bought after last earnings report, when it was punished too much. Tomorrow is another earnings report, and I don't know how that is going to play out But my cash position is a little bit too big, so I decided to invest in a muni CEF: Eaton Vance California Municipal Income Trust (CEV). Fund trades at discount to NAV (a rarity among muni CEFs) and has a decent yield.