While this is an interesting concept, I found it best NOT to soul jump during the nightmares. This gives you the entire dream uninterrupted. Simply pause and wait a moment for the option to go away and proceed.
If you wish to soul jump, this is the way to do it... After waving your hand over a character or pointing at them, if you get a close-up of them and see your reflection sparkling in their eyes, quickly click on that person to jump into their soul.
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