Conditions are best when a high temperature lapse rate (i.e. a rapid decrease of temperature with elevation) prevails at the sea surface during the warmest part of the day (usually around high noon or early afternoon) and the winds are light and variable, with an extremely weak vertical wind shear. This kind of environment thermodynamically can support strong updrafts. In the Florida Keys, due to the unique geomorphology of the region, waterspouts spawn most frequently in the late afternoon or early evening.

Research has determined that waterspouts are the end product of a number of interacting forms of motion that produce a cascade of energy. When a patch of air just above the sea surface becomes heated and rises, the resulting pressure differential causes the surrounding, slightly cooler, air to spiral inward, forming an eddy, much as a land-born dust devil. Over warm water, however, the abundant water vapor at the sea surface adds to the latent heat of condensation. And because water vapor is lighter than dry air, the steep water vapor gradient that is present helps carry the original spiraling eddy skyward. Though a parent cloud need not be directly overhead, there is always a cloud system or cloud mass nearby (usually cumulus congestus), coupled with strong convective air currents that frequently produce a downward moving funnel.

From this point on, NOAA's Dr. Joseph Golden distinguishes five stages of waterspout formation:

1. Dark spot. A prominent circular, light-colored disk appears on the surface, surrounded by a larger dark area of indeterminate shape and with diffused edges. While not visible to the mariner at sea level, the presence of a dark spot and an associated funnel cloud overhead indicate that a complete funnel is present.

2. Spiral pattern. A pattern of light and dark-colored surface bands spiraling out from the dark spot develops.

3. Spray ring. A dense swirling annulus (ring) of sea spray, called a cascade, appears around the dark spot with what appears to be an eye similar to that seen in hurricanes.

4. Mature vortex. The waterspout, now visible from sea surface to the overhead cloud mass, achieves maximum organization and intensity. Its funnel often appears hollow, with a surrounding shell of turbulent condensate. The spray vortex can rise to a height of several hundred feet or more and often creates a visible wake and an associated wave train as it moves.

5. Decay. The funnel and spray vortex begin to dissipate as the inflow of warm air into the vortex weakens. Frequently, rain showers that develop nearby (caused by the thermal updraft) create a down draft (or leading edge gust-front) of cooler air that accelerates the waterspout's decay. Ship masters whose vessels have been hit by waterspouts during the decay phase have reported being drenched with a combination of salt water and rain water.

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