Hi

I had to do something very similar to what you are doing...I used one of the Allegro "Hall effect" sensors (3421)..If you use one of these you can "Pot" the entire detector and cabling in a small tube ,making it water resistant..

On the end of the shaft I used an aluminium flange with magnets mounted into it .I initially used 2 magnets , but went to 6 to increase the resolution.

I buffered the input to the uP using 4050 chips , then fed then to an interrupt.