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Is it a good thing or bad step to spray paint over the fairing compound to highlight the low and high spots when sanding the fairing compound.

I would say it depends on the paint. Some of the polymer paints will just add a layer of veneer that will gum up sandpapaer and add to the fairling agony. But a light power layer of something like Krylon shouldn't be too much of a bother and a big grit paper like 60 will just annihilate it right away so that you can get on with the rest of it.

Personally, I did color contrasts by different mixes of fairing additives to provide slight variations of coloring. On the other hand, my boat isn't that fair!!

yeh,,a tracecoat never lies.