Adding water will dilute the CYA reading some but its hard to know how much. And, you're right, it is definitely the hardest test to read. Watch the testing demo videos at this link:> http://pool9.net/K2006-vid/

If you do think your CYA is at 35ish, you'll probably do better if you raise it just a little. Maybe add another 2 to 2-1/2 lbs. That should add another 10ppm.