Madrid have won all seven of their matches this month to close the gap at the top of La Liga to a single point and progress to the quarter-final of the cup, where they hold a 1-0 lead from the first leg.
Victory over Granada on Saturday briefly put Ancelotti's side top of the table and he wants January to be the launch pad to a successful season run-in.
"We have to close a great January with a good game against Espanyol," the Italian said ahead of the match.
"We have a small advantage, but it is an open tie and we need to prepare well and play it well, with the best possible team to reach the semi-finals.
"The month was very good. January helped us cut points in the league, to have more confidence in the team. The month was very good and we have to close it well tomorrow against Espanyol.
"Winning the Copa del Rey is not enough for us. We want to win as many titles as possible.
"We are in a great physical shape at the moment, but we have to be careful because we are playing a lot of games."
Gareth Bale will not play in the match - the Wales international was substituted at half-time against Granada with a leg injury and will not recover in time for Tuesday's clash so Jese Rodriguez will start.
"He (Bale) tried to train but had discomfort in his left leg," Ancelotti added. "We prefer (him) to recover and will not play tomorrow. He will train this week to try and play on Sunday.
"Jese will play in his place."
