Create a new empty Layer, (should auto name to 'Layer 3' at this point) directly above Layer 2. (Shift + Ctrl + N (Mac: Shift + Command + N))
In this Layer we will create the dividing mist area between water and sky.

Set the Foreground Color to White (#ffffff), Background Color to Black (#000000). Then select the 'Gradient Tool (G)' on the 'Toolbar', and up on the 'Options Bar', select the 'Foreground to Transparent' preset from within the 'Gradient Preset Picker'.

Except, this time change the gradient style to 'Reflected Gradient' and the 'Blending Mode' to 'Normal', with 'Transparency'.
Then in at the mid area of the image click and drag a short distance.





To produce the below result.



I nudged the Layer 3 mist Layer downward a few notches with the Down Arrow key, and knocked its Opacity Level down to 66%. (Ultimately, you adjust to what your happy with!)



Here's how it looks thus far.



This and of itself is fine, but just another step to add clouds to the skyline.

Simply duplicate 'Layer 2', so that your Layers Palette looks like the below.



Ctrl + Click (Mac: Command + Click) on that Layers Thumbnail (encased in red below) to select it.



You should now see a marquee selection around that Layer. (Layer 2 copy)

Finally, set the Foreground Color to the Blue we used earlier (#7AA6E8) & Background Color to Black (#000000).
Then go to 'Filter/Render/Clouds', to produce the below result.



A little harsh, so to compensate, simply set that Layers (Layer 2 copy) 'Blending Mode' to 'Overlay', and bump down it's Opacity Level to one that your most compfortable with. (I used 70%)



And here is the final result.