Cramer: This Is the Shorts' Worst Nightmare

The most popular short positions of the year are causing pain for hedge funds and bearish investors alike, after many of these heavily shorted names have rallied this quarter. This is a "worst nightmare" situation for short sellers, CNBC's Jim Cramer said on "Squawk on the Street" Tuesday.

As Blackberry unveiled its new Q5 smartphone Tuesday morning, Cramer sees the company going after consumers looking to turn their smart phone into a "fashion statement," much like Apple did with the iPod. "I don't think it's going to happen, but this stock has got so many people wanting it to go higher, and this tape, wow, I don't know," he said.

However, Blackberry - like many other "classic" short positions - is trying to buck its bearish trend like many other stocks have done recently.

"If you're a hedge fund manager you always have to have some shorts in the book and people look at what's overvalued and they say 'you know, I gotta short Tesla'," Cramer said, imagining a situation where managers were shorting Tesla and going long Ford, a trade that would have caused devastating losses in recent months.

"Best Buy, at $14, everyone wrote it off. At $26, there's going to be a $40 deal," he said. "JC Penney, at $12-14, everyone said 'we're all selling, I don't want anything to do with it,' (CEO) Mike Ullman comes in and suddenly they're having a good couple of weeks and Memorial Day is going to be a blow-out."

"This is the shorts' worst nightmare right now. This is it," Cramer said.

"I'm watching Blackrock right, I gave up on that at $250, it's at $280. Blackrock is a good proxy for money coming in," he said. Blackrock's Larry Fink is seizing the moment and capitalizing on the strong market, he added.

"Those who are choosing not to seize the market are going to have their assets seized by the end of the quarter," Cramer said.

— By CNBC's Paul Toscano. Follow him on Twitter and get the latest stories from "Squawk on the Street" @ToscanoPaul