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Cramer: Traders betting against retailers could get hammered

  • But for that to happen, CNBC's Jim Cramer argues that another chain besides Target needs to come out with the same type of optimism.
  • Target announced before the bell a boost in second-quarter guidance, and said it expects a "modest increase" in same-store sales.

A short squeeze could be emerging in battered retail stocks, CNBC's Jim Cramer said Thursday.

But for that to happen, Cramer argued that another retailer besides Target needs to come out with the same type of optimism.

Target was surging about 4 percent at the open after the retailer announced before the bell a boost in second-quarter guidance, and said it expects a "modest increase" in same-store sales.

Target Chairman and CEO Brian Cornell said, in a statement, "Following better-than-expected results in the first quarter, we've seen additional, broad-based improvement in traffic and category sales trends in the second quarter, despite continued challenges in the competitive environment."

"People who want to jump on the retail bandwagon, you need one other company. You've got to have Macy's come out. You've got to have a Kohl's come out. Somebody has to come out besides just [Target's] Cornell, so we know it isn't just one company," Cramer said on "Squawk on the Street."

"We need to hear something from Macy's. We need to hear that [its] July Fourth sale was really big. And that the traffic is good. Traffic is the lifeblood," he added. "I think Kohl's is doing well with Under Armour; doing well with Nike. … It would be great for Kohl's to come out and do what Brian Cornell did. It would be great."

"Then, you will have a short squeeze. It won't be a rip-your-face-off short squeeze, but a meaningful short squeeze," Cramer said. "These stocks are cheap ... based on the destruction that Amazon Prime did to their common stocks. You have a trade here. I'm not talking about an investment."

So far this year, as of Thursday morning, Target was down about 27 percent; Macy's has fallen 38 percent; and Kohl's has dropped 22 percent.