In all kinds of top-down sweaters, the yoke and arms are knit as a continuous unit to the underarm.
The yoke of the sweater has a cape form when you get to the underarm:
And here's the yoke open so you can see the shawl neck shaping:
When you get to the underarm, you knit the sleeve stitches to holders, dividing the arms from the body (oh, how gruesome):
The sleeve stitches on their holders:
The sleeve stitches stay on their holders while you knit the body.
On the first row after dividing the sleeves from the body, you cast on a few stitches at each underarm and then knit the body on down to the hem:
When the body is complete, you pick up along the underarm cast-on and knit the sleeves down in the round. Pick up the cast-on stitches and add two transition stitches at each end of the cast-on. If you don't pick up transition stitches, the corner stitches along the underarm will be stretched, leaving unsightly holes at the underarm. The transition stitches close the gap and make the fabric of the underarm smooth.
The steps for dividing the sleeves from the body:
- Knit one row, knitting the sleeve stitches onto holders.
- Knit back across body stitches only, casting on an inch or two of stitches at each underarm.
- Finish knitting the body of the sweater.
- Pick up the cast-on stitches along the sleeve edges of the underarms, adding 2 transition stitches at each end of the cast-on stitches.
- Knit the arms down in the round.