Make a copy of the small light's layer:
Layer ? Duplicate Layer (ctrl+j) and blur out the lowest copy, applying next option:
Filter ? Blur ? Gaussian Blur.
Make a copy of the pencil's layer and change the copy's
Blending Mode on
Soft Light.
Merge down the layers containing the pencil and the small light:
Layer ? Merge Down (ctrl+e) and make a copy of the new layer (ctrl+j). The lowest copy should be made of white color, applying
Image ? Adjustments ? Channel Mixer.
Blur out the layer, using the
Gaussian Blur.
Then we have to create a new layer, situated above the first one and group them both out:
Layer ? Create Clipping Mask (ctrl+g). Paint out the layer, applying the usual instrument ?
Gradient Tool.
Create a new layer above the pencil's one and group them out too (сtrl+g). Select the
Pen Tool and mark out one of the pencil's edge, choosing the
Make Selection option and paint it in white color with the same
Gradient Tool, but with a different gradient's type.
Move off the markings:
Select ? Deselect (ctrl+d) and change the layers'
Blending Mode on
Soft Light.
Select now the
Brush Tool and download a set of ready to use brushes of smoke shape from the next address: (
http://www.deviantart.com/deviation/29341959/?qo=12&q=by%3Afalln-brushes&qh=sort%3Atime+-in%3Ascraps). Insert it above the pencil's layer (I've combined two types of brushes, using the
Eraser Tool).
Pass to another window:
Filter ? Liquefy (shift+ctrl+x) and select the
Packer Tool to narrow out the smoke near the fire.
The new layer grouped with the smoke's one must be painted with two colors gradient (apply the same colors used when creating the effect of pencil's illumination).