Cramer warns shorts about Reddit crowd: 'If they smell blood in the water' they show no mercy

Published Wed, Nov 3 202111:54 AM EDTUpdated Wed, Nov 3 20213:40 PM EDT

CNBC's Jim Cramer on Wednesday warned hedge funds that shorting Bed Bath & Beyond or any other stock risks the wrath of investors who foiled short sellers by championing meme names such as GameStop and AMC Entertainment . "I think that people don't understand, this is a new world," Cramer said on " Squawk on the Street ," referring to the power of the Reddit trading crowd of retail investors. "If they smell blood in the water of short sellers, they show no mercy." Short selling is a bet that a stock will go lower. Earlier this year, stocks such as GameStop, AMC and Bed Bath & Beyond were dubbed "meme stocks." That's because individual investors on online chat forums steeped in internet culture banded together on trades meant to inflict the most damage on short-selling hedge funds. In turn, the hedge funds were forced to cover at higher prices and thus pushed shares of the target companies through the roof. The phenomenon spurred congressional hearings and a Securities and Exchange Commission report but also brought many new investors into the market. "When you have a company that has a big short, then you know the GameStop people get reenergized, the people who did AMC, and they feel like they've got hedge funds on the run," Cramer said. "This is the world we're in now; when people bet against stocks they're going to be clobbered." "You've really got to know your short [case] if you're going to be able to bet against a company," he said. Bed Bath & Beyond shares jumped more than 20% on Wednesday morning after soaring more than 80% in after-hours trading Tuesday , following news that the company would be partnering with grocery giant Kroger . The runup in shares after the close was likely fueled by a so-called short squeeze. Wall Street analysts are already warning investors that the surge will not last, while Cramer puts hedge funds on notice about small-time investors. "There are a group of people who have discovered that there are hedge funds representing rich people, by the way, that can be annihilated very quickly," Cramer said. Wall Street analysts also warned investors about jumping on the bandwagon of heavily shorted car rental company Avis , after the stock more than doubled Tuesday on the company's earnings beat and stock buyback plan as well as talk about adding more electric vehicles to its fleet. Avis was down 17% on Wednesday morning. Old-school meme stocks GameStop and AMC, on the other hand, were jumping Wednesday, with shares of GameStop rising more than 6% and AMC up about 5%. Sign up here for the new CNBC Investing Club newsletter to follow Jim Cramer's every move in the market, delivered directly in your inbox. Correction: This story has been updated to correct a typographical error in the name of Bed Bath & Beyond.

Jim Cramer

Scott Mlyn | CNBC