I think that Julian can stop the advance.
I don't see a Capellan Rollback in the cards. I think they will keep what they've taken. The Capellans heir is inbred and nuts though before that she was a good and awesome person. But their only weakness is the way they're interacting with Clan Sea Fox which might lead to them being under equipped.
Julian Davion's relationship with Clan Sea Fox and the Capellan's antagonistic stances towards Clan Sea Fox is the only threat they're facing.
The Draconis Combine is a house of cards. They could break into a civil war.
Being born of incest does not in and of itself mean one has to be insane. Yes it puts one at greater risk of genetic diseases, and psychologically it can be damaging due to the societal stigma, but it does not in and of itself mean insanity or being a psychopath.
My understanding is that Danai's reaction is due to the trauma of what Caleb did to her. Her actions then are acts of revenge upon him and his FS. That is actually pretty understandable actually.
I think the Capellan advance can be stopped by the Capellans deciding themselves to stop in order to digest their gains after they realize further advances are untenable when their forces get weakened by the Republic's flank attack, and as there is increasing unrest in their new territories. The CC has in the background been an underdog for its entire existence that I think an interesting change of pace would be them in the novel position of having to deal with the problem of actually absorbing new gains, not merely reclaiming old lost planets. Instead of being insurgents, now they have to pacify a restive population. In spite of their victories under STL, the CC has still ultimately been reclaiming some of its former pre Succession War strength and its gains have been more making up losses than true gains. Just a bit tired of the trope of the "mad Liao", or more broadly that a ruler must be mad in order to make questionable decisions. Perfectly sane rulers can make decisions that in hindsight were perhaps not the best, but which seemed reasonable at the time.
Conversely I think the FS being in the position of underdog would be a welcome change of pace. A true underdog and not merely being taken down from FedCom superpower to still strong power. I think Julian should pull off an "honorable peace" through his counterattack but not turn into the messiah pulling victory from the jaws of defeat. Any turnaround in the FS's fortunes should take time just as it took the CC a long time to recover from the 4th Succession War. A leader gritting his teeth, showing patience, and working with this to rebuild the FS and rein in the insubordinate March lords for me would be more heroic than a stereotypical warrior king charging in and somehow pulling a victory off in spite of his brashness. Those kinds of "brave kings" are warriors not rulers and such actions should result in their deaths.