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We report on the signal and image processing and initial results of an optical set-up designed to image, track and directly measure the velocity of red blood cells passing through small arterial and venous capillaries in the skin covering the proximal part of the fingernail. Due to the fact that refractive index matching oil is applied to the skin the measurement can be done transdermally. The aim of this research is in the medical field in particular in drug efficacy tests or determining the effectiveness of medical treatments of various kinds. The paper give details on the optical setup the image acquisition and the processing of the video data stream to obtain accurate velocity estimates of the blood flow in superficial capillaries.