To add some highlight, create new layer, and use large soft white brush to add a spot. Then, transform it (Ctrl-T) - stretch it horizontally.

Change layer blend mode to Overlay.

Next step is to create a cloud. Change forecolor to light blue, switch to Shape tool (U), select Ellipse, switch to 'Add to shape area' mode (2nd button in top row, so that all shapes you create are in single layer). Then, holding Shift, add several circles, overlapping each other a bit.

Add the following layer effects: - drop shadow (black, mode = overlay, opacity 30-40%, distance 3-4px, size 10-15px)
- inner glow (white, overlay, size = 5-6px)
- gradient overlay (black-to-white, mode = overlay, opacity 75%, angle 90)
- bevel and emboss (size 30px, soften 5px, highlight white 75% screen, shadow multiply 40% blue)
- satin (black, mode = overlay, distance 6px, size 14px, try different contours)

Our cloud is ready!

Add another small cloud in front of bigger cloud. When you add layer effects to smaller cloud, decrease all sizes and percents accordingly.

And then, more and more clouds!

Next, we need a rainbow. We will make rainbow with shapes, each color in one shape layer. Create new layer (behind layers with clouds). Set forecolor to red, select ellipse shape tool (U) and make a red circle (as always, holding Shift to preserve proportion)