This code
\documentclass{amsart}
\usepackage[all]{xy}
\begin{document}
\[
\xymatrix@-0.75pc{
\overset{1}{\bullet}& & \overset{2}{\bullet}& & \overset{3}{\bullet}& &\overset{4}{\bullet} & &
\overset{5}{\bullet} & &\overset{6}{\bullet} & &\overset{7}{\bullet} & &\overset{8}{\bullet} \\
& \ar@{-}[ul] \overset{}{\bullet} \ar@{-}[ur]
& & & & \ar@{-}[ul] \overset{}{\bullet} \ar@{-}[ur] & & & & \ar@{-}[ul] \overset{}{\bullet}
\ar@{<..>}@/^1pc/[rrrr] \ar@{-}[ur] & & & & \ar@{-}[ul] \overset{}{\bullet} \ar@{-}[ur] & \\
& & & \ar@{-}[ull] \overset{}{\bullet} \ar@{-}[urr]
& & & & & & & &
\ar@{-}[ull]\overset{}{\bullet}\ar@{-}[urr] & & & \\
& & & & & & & \ar@{-}[ullll] \overset{}{\bullet}
\ar@{-}[urrrr]& & & & & & & \\
}
\]
\end{document}
but what I would like to add to the diagram are the circles as seen below:

which encapsulate the top two adjacent vertices, the two edges "connected" to them, and the vertex in the layer below, "connecting" the two edges.
The circles can be decorated in any way, e.g., dotted or dashed, in any thickness and color, but is it possible to do this using xymatrix?


tikzinstead ofxy. It is much more powerful and intuitive. – Sigur Feb 22 '19 at 15:53