Today might be a good day for the bulls to go to the beach, or get a hard start on the long, slow drive north to cottage country.

The mother of all earnings warnings from Nortel Networks is driving a sad trade on the TSE today.

Any underlying strength elsewhere has more or less been undermined by a much-stronger-than-expected inflation report this morning. At midday the TSE 300 is down 130 points to 7,789.

It may not be a huge point drop, but the market internals are negative. A robust 113.7 million shares have changed hands, most of it people giving up on Nortel. Selling volume is outrunning buying by about five to one. Losers outnumber winners by better than five to three.

The industrials are terribly weak, down about 5.4%. Techs of course are weak, as is most everything else.

No one is even trying to hide in gold today. It is down, along with miners, paper stocks and utilities. Financials are particularly weak, led by the banks. A few brave buyers are taking refuge in real estate energy, pipelines and media stocks.

Nortel is the story of the day, announcing a surprise US$19.2 billion quarterly loss, along with another 10,000 job cuts, bringing its contribution to worldwide joblessness this year to 30,000.

The layoffs are expected to be done by the end of the third quarter and some analysts are applauding the firm taking drastic action. With no CEO in line and no clear future, however, many are simply giving up on the stock.

The good news is that the TSE has handled without a hitch, the 25 million shares that have crossed the tape as Nortel drops 14% to $14. Everything Nortel is being taken out and shot today, even the preferreds are down 22%, as the company suspends its dividends.

The other big stock to issue a warning, JDS Uniphase, is taking its punishment, too. It’s down 15% in active trading. Other techs caught in the mess include C-MAC, Sierra Wireless, Celestica, Tundra Semi and 724 Solutions.

The banks are suffering some collateral damage. Although the news of higher consumer inflation sparked speculation that rate cutting is at an end for now in Canada is hurting the banks as well. TD is off almost 2% in heavy trading. The others are all down, too, as are most of the insurers and other financials.

There are stocks on the upside today, but they are doing it on light volume. Nevertheless, gainers include Cryptologic, Storm Energy, Baytex Energy, Primewest Oil and Gas, TVA Group, Siebel and Sceptre.

In M&A news, PanCanadian Petroleum is buying Causeway Energy Corp. for $65 million, plus the assumption of $4 million of Causeway debt. The deal is subject to Causeway shareholder approval and is expected to close later this summer.

In New York, stocks opened down and headed lower on the Nortel-JDS combination punch. But by mid-morning, bargain hunting and buy programs kicked in and most of those losses have been recovered. The Dow is now down just 19 points to10,671. The Nasdaq composite index is off but nine points to 2,035. The S&P 500 has lost three ticks to 1,217.

Canadian small caps have not been able to escape the downdraft. The CDNX is down 20 points to 3,310. Techs are leading the way, but oils and mines are down almost as much too.

Volume is average at 16 million shares. Coastport Capital Inc is the top trader, up 17% to 25¢ on more than 2 million shares.