It's about the central banks, stupid!

What portended to be a very ugly trading day on Monday was reversed, erasing most of Friday's decline. This must be what a ping-pong ball feels like. As investors are batted from one side of the table to the other, they recognize the central banks as the table-tennis combatants.

Tune in to CNBC's "Closing Bell" today at 3:30pm ET. Michael Farr will be on talking about today's market action.

The new ECB headquarters in Frankfurt, Germany.
Wolfgang Rattay | Reuters
The new ECB headquarters in Frankfurt, Germany.

Stocks had a very bad day on Friday — China and Greece were the culprits. China announced two new policies to temper the sizzling Chinese stock market. It also reduce the reserve ratio for banks by 1 percent. Greece is in an ongoing passive-aggressive standoff with the European Central Bank.

Read MoreWhy China's RRR cut reeks of desperation

What should we expect this week? The first focus is China's market's reaction to the rule changes. As the easier money takes share prices higher, investors will then look to the ECB to hear how the plan to work out a Greek compromise will take form. Greek news will be what it will be. Count on a compromise sooner or later. The notion that Greece will exit the euro zone is wildly impractical.

A contagion of other bad EU actors, like Italy, would cause much deeper problems for the ECB than resolving the Greek dilemma.

Read MoreGreece moves to seize cash from the public sector

Markets are near all-time highs and face exogenous threats to their stability. Caution is warranted, and though we may avoid a correction once again, no one can be surprised by a material decline. Markets go up and down. It has been long enough since they went down that many market participants have forgotten they can.

Up or down, it's the central banks, stupid! If they add money, prices go up. If they even suggest tightening, prices go down. The fund flow has been one way for years, and investor complacency is a significant risk. Caution and vigilance are warranted. Since the inception of quantitative easing, markets have faced all threats without concern.

The Federal Reserve won't be at the party forever. Make sure you have a seat when the music stops.

Commentary by Michael K. Farr, president of Farr, Miller & Washington and a CNBC contributor. Follow him on Twitter @Michael_K_Farr.