Typically how this is done is by placing your line art on a layer above other layers and then setting it's Blend Mode to Multiply. This allows you to add layers below the line art containing the color(s).
By setting the line art layer to Multiply you get the benefits of pseudo transparency and only the key line will show, assuming it's a black or dark key line.
(This is quick and messy because I couldn't zoom in to be more accurate).
If you want to make a selection, simply highlight the line art layer, and use the wand to select an area. Then switch layers and fill the selection with color.
You'll notice in the animation above, for the hair at the end of the animation, I did just this -- highlighted line art layer, used the Magic Wand to select the area for the hair, switched to a new layer (below the line art) and then filled with color. The selection will remain active when switching layers.