How is the diff going up when there is only 4-5 MHs on this coin?
The diff changes every 12 blocks (1 hour on average).
When it drops, it gets hammered by a coin switching pool. This pushes the difficulty back up. New blocks can happen every few seconds.
Once the difficulty rises, those pools switch away.
At Block 15000, the system changes slightly.
Currently, it just uses the last 12 blocks to do the retarget. After block 15000, it will use the last 72 blocks (so 6 hours), but will still re-target every 12 blocks. That should smooth things out more.
Also I have looked at options, and the solution you have submitted seems to be the best fix. The longer I observe the coin, the more I am convinced that the changes you proposed are the perfect fit. There could be an update in the next couple days.