Ride, Wrench, Swap, Race
Join Date: Jan 2010
Location: Northern California
Bikes: Cheltenham-Pederson racer, Boulder F/S Paris-Roubaix, Varsity racer, '52 Christophe, '62 Continental, '92 Merckx, '75 Limongi, '76 Presto, '72 Gitane SC, '71 Schwinn SS, etc.
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I would first tug on the exposed cable along the down-tube.
Does the derailer "clunk" when you release the cable suddenly?
If there is no clunk, then the cable is either too tight or the cable housing or bb cable guide (bottom of frame) are clogged with dirt/sludge.
At minimum, I suspect you will need a new length of cable housing going into the rear derailer, but it is usually possible to un-hook the cable housing from the cable housing stop on the chainstay and then slide the housing up and down the cable so as to get it freed up, cleaned and lubed so the cable slides more smoothly.
To get the housing un-hooked, first shift the chain to the biggest rear sprocket, then shift the shifter to the small sprocket position WITHOUT TURNING THE WHEEL OR CRANKS, which will totally slacken the cable and allow the housing to be un-hooked.