I have crosslinked 20 sites and I thought I have been penalized for this, asked this question and some experienced members told me maybe that crosslinking may not necessarily be the reason.
The sites are on same host, different C class IP and every site in linked to each other.
Each site targets long tail kewords. Site 1 - BMW Used Cars - and my area Site 2 - WW Used Cars - and my area And so on...
When I crosslinked them (in the sidebar), I did it for the users; instead of repeating the terms used cars and my location over and over (since my users are targeted) I just crosslinked them using the brand: BMW, WW.
Targeting locally, my niches are not overly competitive, so I did not need to many external links to rank on various positions on the 1st page.
I'm thinking that when I chose to link using only the brand, google might have thought I wanted to actually rank for BBW and WW, hence the drop in my targeted local traffic.
Could this be?
I now have no-followed the links and I am noticing a slight recovery, but if it's not a interlinking penalty it would be a shame not to benefit from my links.