86 300E Transmission Problem - Advice needed

Just bought a 86' 300E yesterday, and driving it home I ran into tranny issues.. the car shift hard, banging the gears, and from what it seems like it doesnt have 4th gear or overdrive.. However I read that the car starts off in 2nd so if that is the case then I have all the gears... problem is, when It heats up and I go over 55PMPH or get on it, the car kicks down and goes to second and I no longer have 3rd or 4th... What could be the issue? I have heard of a k1 spring kit for the valve body, which I would like to do or maybe clogged passages in the valve body? the car has 127K and is in near mint condition. The fluid was down a quart or so, so I filled it up and seems better but still have the same problem. Any suggestions or am I out of luck and need a rebuild?

There is a switch under the gas pedal that downshifts when pedal is pushed hard. Check it out. Sounds like a major problem though. Get a new trans filter and drain the oil. You have to drop the pan to change the filter. All the shifting is controlled hydraulically by the valve body and if clogged will cause problems. The filter is held on by 3 phillips screws.
Good Luck