When Mach diamonds are formed, (in the over expanded case) the flow is firstly compacted by the atmosphere when it leaves the nozzle. This makes a cone-like shape, seen where the flow first exits the nozzle. Picture:
Now my confusion is here: Why is the outlined green part in the picture below not also compacted? What is different about that section of flow?
In other words, why is not all of the flow getting compacted into a shock diamond?