The waterspots are on the clearcoat. If its in the clearcoat or paint you have bigger problems, as in something is very wrong with your paint job, not likely though. When was the last time you stripped down your polish/wax? If you haven't done it in the last year or so, it's probably time, especially if you use WAX on your car.
Try 3M Perfect It Foam Polishing Pad Glaze. You can apply it by hand if you think you have the endurance and elbow grease to do it, but I recommend getting a high speed buffer (1800 RPMs) and 3M pad (grey pad) to do the job, it will save lots of time and effort. If that doesn't work you may need to use the 3M Rubbing Compound (with beige pad) because it's very possible the waterspots are under the coats of polish/wax you've been putting on it. Keep in mind if you use the Rubbing Compound you should go over it again with the polishing glaze to remove any haze or swirl marks left by the polishing compound. There's another 3M product you can apply after the polishing glaze if you want, it's called Ultra Fine Machine Polish (blue pad), which is an additional step to remove REALLY fine scratches and hazing. I haven't used the Ultra Fine step, but I frequently use the other stuff, and it does an excellent job.
I'll also add that if you're using wax, I'd consider moving to something else. Waxes are not the best protection for your paint because it doesn't last long on the car and can actually melt in the sun and damage your clear coat. Most shops will recommend a synthetic urethane or silicone based polish, which bonds to the paint and protects it for months, whereas wax lasts about a week or two. Zaino, Liquid Glass, and 3M Finishing Glaze are the 3 big ones that I know of. I hear good things about Zaino but haven't used it. I have used Liquid Glass and 3M and both are awesome. I can wash my car a dozen times before I need to lay another coat of finish on it.
There are a few options for good finishing glazes as mentioned above, but when it comes to compounding, polishing, and finishing, 3M is the way to go IMHO, and I think you'll find most professional auto paint shops will say the same. If you haven't already, I recommend reading up on all that 3M has to offer for your car's paint and consider using some of their products on your car. You won't be disappointed. I've been using them on all 3 of my cars for years now, and it has definitely reduced the amount of time spent keeping the paint in good shape, allowing me to go driving more often
Just my $.02.
Jason
