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You read it correctly! My 700r4 trans in a vette that we recently acquired has only two speeds, first and second. When we first got the 30,000 mile car, it drove very nice and smooth. Then one day, it would only shift from first to second. It does this no matter what forward gear the selector is in. It stays in second until the rev limiter kicks in. Otherwise, it would probably blow up. There is no slippage and no grindings or burnt oil. Does anybody have any idea what may have suddenly went wrong? Perhaps the most intelligent vette enthusiasts would be able to guess what went wrong. Does anybody want to guess? :D
Other than a broken 3-4 piston, I guess a stuck valve in the valve body could possible cause it...just very unlikely. You should take it to a trans shop. They can check the pressure on the 3-4 piston to see if it is being turned on or not. If you are right in saying the trans fluid is not burnt, there is definitely a pressure problem causing the 3-4 clutch pack to not apply.