The coach believes the arrivals of Adil Rami and Keisuke Honda, as well as Philippe Mexes’ return, mean his side will be in improved shape by the time they face Atletico Madrid
The coach was in positive mood after his side's 2-2 draw against Roma at San Siro on Monday night, a result which extended their unbeaten run to seven games.
Allegri pointed to recent improved performances and the upcoming January additions of Adil Rami and Keisuke Honda as reasons to believe his team are on the up.
"There is still a long way to go before we face Atletico Madrid," he told Sky Italia.
"Over the next few months our form could improve and theirs could drop, even though Atletico are doing great things at the moment. The game is played over two legs and anything can happen.
"I am confident because we have already made the knockout stages – an important target we had that has been achieved. It is a shame no other Italian sides did the same.
"In defence, Daniel Bonera and Cristian Zapata are doing well. We also have Rami coming in for January and Philippe Mexes is recovering from his eye injury.
"Going forward I am certain Honda can play with Kaka, Mario Balotelli and Alessandro Matri. It is just a matter of finding the right balance."
Allegri was asked about Balotelli's performance in the draw against Roma, in which Sulley Muntari and Zapata found the target as Milan twice came from behind to earn a point.
The 46-year-old acknowledged that Balotelli performed better after Matri was introduced from the substitutes' bench to play alongside him in attack.
"Obviously with another striker near him he can get away from the markers a little more," said Allegri.
"Balotelli did well and had a great opportunity at the end to win it. He has always done better alongside Matri than when he plays on his own. It was the same against Napoli even though we lost.
"It is normal that with Matri in the box to draw away defenders, it gives Balotelli more space to shoot from distance."