Okay, your setup looks good. I would offer some live crickets during the day, and just release them into the cage. Also, I would lessen the handling for the time being, as stress could play a part. I would double check your temps, and give this a good read through http://www.reptilechannel.com/lizard...n-species.aspx

Chinese water dragons are a big commitment, and can be very tricky at times. Best of luck!