According to the official definition of the "Santa Claus rally," the time of year when it occurs hasn't even happened yet. The Santa Claus rally refers to gains in the market that frequently occur during the last five days of a calendar year and the first two days of the following year.

However, investors may have gotten an early present from Santa Claus this year. From Oct. 27 to Dec. 20, the S&P 500 rose 15.3%, buoyed by solid earnings reports, continuing signs of strength in the economy, and indications that interest rates would come down soon -- the Federal Reserve recently forecast three interest-rate cuts.

But pay close attention to how the stock market finishes at the end of the year because the Santa Claus rally often has predictive power: It's correlated with the stock market's performance in the following year. Since 1994, the S&P 500 has gained 23 times during the Santa Claus rally period, and 18 of those times, the S&P 500 has gained the following year. Of the six times that stocks have fallen during that period, they've declined in the following year. That means the Santa Claus rally has accurately predicted the direction of the stock market 22 out of 29 times, or more than 75% of the time. That's a pretty good track record for an indicator that any investor can follow.

The biggest Santa Claus rally in history

Given its predictive power, you might expect the biggest Santa Claus rally in history to have taken place during a raging bull market, but the opposite is true.

Since 1969, the S&P 500's biggest Santa Claus rally took place in 2008, in the midst of the great financial crisis: The broad-market index rose 7.4% during that seven-day period. The 2008 gains were part of an extended bear-market rally at the end of the year. In 2009, stocks plunged over the first two months of the year before rallying after hitting a bottom on March 9, 2009. The S&P 500 went on to gain 23% that year and rose a whopping 67% from the bottom to the end of the year.

Those Santa Claus rally gains came primarily in three sessions. First, the S&P 500 jumped 2.4% on Dec. 30, 2008, on news that the government would help rescue General Motors, offering to invest $6 billion into GMAC Financial Services. That momentum continued the following day as GMAC raised more capital and as new unemployment claims fell sharply. Finally, the index jumped 3.2% to start 2009 as retail investors piled into the momentum rally, though it faded after that session.

What this means for the current market

On the surface, the current stock market seems to have little in common with 2008, when stocks were in free fall. Last year's market would seem to have a closer resemblance to the 2008 era.