Yeah, that is a good example of the illegal block, as well as very poor - actually invalid - fair catch signal. I probably would have granted him protection, because, although not the prescribed signal, his intent was clear and given with enough time for opponents to recognize it. But I would definitely 'talk' to him after the play and get him to make his 'wave' bigger - at least get over his head and back out to his side (outside the frame of his body).
And, without looking in the book, as I recall, the penalty is 15 yards from the Basic Spot during a scrimmage kick, so PSK would apply. Since the result of the play was a touchback, the artificial end of the kick is the B-20. So, we'd go half the distance from the spot of the signal, in this case. Looks like he gave the signal somewhere between the B-10 and B-12, so, B, 1/10, B-5 to B-6.
Robert