First, is the layer containing the photo of the sky selected? That might help.
But there are probably better ways to make selections than the magic wand, depending on the value ranges in the sky you wish to select.
Try Color Range, Quick Mask, or manual selections using the Polygon Lasso Tool, or combinations of all of the above.
You can also paint your selection on an additional layer (using brushes), and convert the painted area to a selection, make a channel of that selection, and refine manually.
Is there any possibility that you have "Contiguous" unchecked? That would cause the magic wand to select similar colors all over the image layer.