ok i have a 89 RS with the 305 TBI and a 700R4 but for some reason the tranny will not shift out of second. if you put it in overdrive it will engage first but wont shift out to second. if you put it in drive it wont engage at all it acts like its in netural. the fluid level seems ok. but when i park i notice a small pool of red ATF fluid on the ground. well at least i think it is

 

sounds like your shift cable has came loose at the tranny. put the car on jackstands and inspect the linkage.

 

The governor gear is stripped or broken. This is easily fixed by removing the governor, & replacing the gear.

 

i ended up taking it to the shop and the tanny is shot. my grandpa is gonna give me one so im good to go now