If i understand the question correct then you need this:
add_filter('walker_nav_menu_start_el','auto_category_subMenu',10,4);
function auto_category_subMenu($item_output, $item, $depth, $args){
//first you check if the current item is a category
if (!$item->object == 'category'){
return $item_output;
}else{
//if it is a category then check that it is the right one.
if ($item->title == 'Water Balloon'){
//if we got this far the we are on the parent menu item and
// we are going to get all of the balloon post type listed under it
global $post;
$tmp_post = $post;
$args = array(
'post_type' => 'balloons',
'posts_per_page' => -1,
'category_name' => $item->title
);
$re="";
$submenu_items = get_posts( $args );
foreach( $submenu_items as $post ){
setup_postdata($post);
$re .= '<li ><a href="'.get_permalink($post->ID).'">'.get_the_title($post->ID).'</a></li>';
}
$post = $tmp_post;
return $item_output.'<ul>'.$re.'</ul>';
}
}
return $item_output;
}
this code assumes that your category name is “Water Balloon” and your post type is named “balloons” if not simply change that.