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You know what, Ausaf, one of my sites was in a similar situation.  In April it tanked, and there was no warnings from Google and no obvious reason for the fall. No deathly hallows links to my site that I could find. It may be that certain sites that were providing you juice were devalued by Google, and caused your drop. Quality link building might help.

I tried everything I could think of for 2 months, tried to get questionable sites to unlink, added new content, fixed a few minor html errors, and nothing budged it. The site just seem to fall further.    In mid June I just started a new site with a well chosen domain name, rewrote the content, carefully built a broad variety of new links... and voila!  I'm back on page 1 (result #3 currently). I was previously #1, but I tell you after 4 months of this I'm glad to be on page 1.

Sometimes its good just to start over if you're able to.

I know that 2 months is nothing in SEO time, but when you're running a business it's an eternity. I couldn't afford to wait around a year and hope.  If the other site comes back, great. If not, we have plan B.

Thanks for the feedback everyone.

I spent about 5 hours yesterday picking out bad links from good, and sent them to Google through their disavow tool.

I wondered how this could happen (I guess I live in Candy Land) and it took me about 2 minutes to find people on Fiverr selling 25,000 "bad links" for $5.  That's scary, and it seems Google has wrought this with Penguin. I can't work this hard everytime someone wants to spend $5.

My hope is that my site withstands the attack. So far so good, really, but it sure is annoying when you're trying hard to clean things up and do the right thing going forward.

Maybe Google should offer a Disavow Query tool, whereby you could tell it if certain queries are misdirecting traffic to your site. That way I could let them know at the front end that my site has nothing to do with "free sex."