The only indention is on top of the body. See pics
The bees wax in the second picture, did you apply this before or after your problem started? if it was before I think it's a good bet that you have bees wax pushed into the air channel that I mentioned earlier may be dirty, to be honest the bees wax around that hole isn't even necessary, it will also interfere with your O ring's ability to create a seal.
You need to first clean everything out of the area in the second photo and generally never put anything in there that wasn't in there when you first bought it, and again be absolutely sure that there is nothing in the air channel (looking at this now, it's a strong possibility that there is),when your satisfied everything is clean, place your O ring over the pin protruding from your valve assembly, looking again at the diagram the ringular space seems to be between the pin and valve assembly body so your ring should fit in there nicely.
I would advise once again a new ring because if the last ring was in contact with the bees wax, there is a good chance that that is now dis-formed and may not be able to create a seal.
My apologies for not being able to answer this earlier, but I'm in a different time zone and just got home form work, I hope you get it figured out, if this still doesn't give you a result, perhaps you can send it to Iwata dealer for a service and tune up.